14 May 2017

Financial Times: Banks braced for ‘hundreds of millions’ in Brexit costs

The UK’s exit from the EU will force international banks to move some activities out of London because they can no longer rely on the City for seamless access to the EU.

In extremis, they could be forced to move everyone dealing with EU clients, and all their risk and trading functions as well as the capital to support them, to another European country.

Much attention so far has focused on the number of jobs the City will lose, with Deutsche Bank recently warning it could shift as many as 4,000 of the 9,000 jobs it provides in the UK to Frankfurt. Bankers have also begun doing the sums on how much it would cost them to move so many people to a new centre, which may also require its own capital.

The chief financial officer of one international bank said its cost estimates range “from the tens to the hundreds” of millions of euros, depending on the outcome of Brexit negotiations. “The hundreds is a scenario where we are building out full risk management, full booking capability [in another EU centre] . . . There’s a significant cost in moving people, in rehiring.”

“The most important swing factor is the extent to which we can manage risk and trading out of London,” he added. “If agreements allow for a set-up that enables us to contact clients out of a European entity that has European access but continue to manage risk and trading out of London, the impact would be far less.”

The banks likely to be hardest hit by Brexit are the dozen or so big North American, Swiss and Asian banks that base most of their European corporate and investment banking operations in London.

The head of investment banking at a large US group said that its initial contingency plan would “require a lot of investment of money but not a lot of people moving, though there will be some new positions created”.

“You need to have the infrastructure and legal entities to really face your European clients in their local markets. It will be hundreds of millions in costs,” he said. “This is building up an extra layer of costs.”

Full article on Financial Times (subscription required)

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