Grim forecast for UK banks after Brexit

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”.