Thursday

28th Mar 2024

Grim forecast for UK banks after Brexit

  • Banks to start moving staff out of London to new EU branches prior to September 2018 to enrol children in schools (Photo: Leo Hidalgo)

Banks will need up to $50 billion (€42.3 billion) in extra capital and see higher costs of $1 billion (€846 million) to diversify out of the UK and into the EU after Brexit, a leading consultancy has said.

Up to 35,000 jobs in the financial services sector overall and 17,000 jobs in the wholesale banking area were likely to shift out of the UK to the EU in the medium term, Oliver Wyman, a New York-based consultancy, said in a report out on Monday (31 July).

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • Frankfurt - the home of the ECB - emerging as favoured location (Photo: barnyz)

The move would come as banks opened new branches and subsidiaries in the EU in order to be able to keep trading there freely.

But the movement of jobs from the UK "could ultimately be greater” in the long term as banks pooled staff in Europe to “encourage collaboration among salespeople, traders, and risk managers”.

European Central Bank (ECB) requirements for big banks to show they “have strong local control and governance” would also contribute to the trend.

Wholesale banks, which sell services to corporate and institutional clients, could alone move 40,000 people out of London to EU alternatives in the long term, Oliver Wyman estimated.

It said Amsterdam, Dublin, Frankfurt, Luxembourg, and Paris were “emerging as the main destinations”.

It said Frankfurt, the home of the ECB, was popular for the sake of “supervisory stability and influence”. Dublin was liked for its low taxes, while Paris and Amsterdam were considered “attractive and convenient locations”.

Oliver Wyman said a hard Brexit, in which the UK lost access to the single market, would “fragment the European wholesale banking market” and “make it significantly less profitable” as banks would have to finance their new EU branches and store capital for new operations.

“Banks could see two percentage points knocked off their returns on equity of their wholesale banking operations in the region,” the US consultancy said.

It said many bank CEOs were looking to “minimise expense and disruption by relocating as little as possible in the first instance”, while awaiting how Brexit talks panned out.

But with the UK exit looming in March 2019, “over the next six to 12 months … actions will be needed that are more costly and harder to reverse - such as injecting new capital into EU entities, moving employees, appointing senior management, and building dealing room infrastructure”, it added.

The consultancy said issues like the Irish border, citizens’ rights, and the Brexit divorce bill, rather than the banking sector, were the politicians’ top priorities for now.

It said “job losses in London and reduced tax revenues mean the UK has a clear interest in avoiding” loss of access to the single market.

But it added that: “So long as the outcomes of the Brexit negotiations remain unpredictable, banks must act as if a hard Brexit is coming”.

Brussels Bytes

Commission right to reject screen-scraping ban

Screen-scraping, which is the process of scanning what the customer sees when they log into their online bank accounts, should still be allowed as a fail-safe.

Opinion

Why UK-EU defence and security deal may be difficult

Rather than assuming a pro-European Labour government in London will automatically open doors in Brussels, the Labour party needs to consider what it may be able to offer to incentivise EU leaders to factor the UK into their defence thinking.

Latest News

  1. "Swiftly dial back" interest rates, ECB told
  2. Moscow's terror attack, security and Gaza
  3. Why UK-EU defence and security deal may be difficult
  4. EU unveils plan to create a European cross-border degree
  5. How migrants risk becoming drug addicts along Balkan route
  6. 2024: A Space Odyssey — why the galaxy needs regulating
  7. Syrian mayor in Germany speaks out against AfD
  8. Asian workers pay price for EU ship recycling

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us