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LONDON – A banking exodus from London will be costly.
International lenders may need to shift as many as 40,000 investment banking jobs to the European Union to maintain activities on the continent after Brexit, according to financial consultants Oliver Wyman.
Banks may also have to pump as much as $50 billion in extra capital into EU subsidiaries “to support new European entities,” analysts at Oliver Wyman said in a report published on Tuesday.
Oliver Wyman is not alone in predicting a banking exodus. The Centre for London estimated last month that as many as 70,000 roles may be relocated from the City of London post-Brexit, while EY last year predicted 83,000 financial services jobs could be lost. Brussels think tank Bruegel made a more conservative forecast of 30,000 jobs lost.
A hard Brexit, in which there is no transitional deal to maintain the UK’s membership of the European Union’s single market, will “fragment the European wholesale banking market,” Oliver Wyman said. “It will also make it significantly less profitable.”
Under EU law at the moment, European banks can operate branches in the UK that do not need to be separately capitalised from the parent company abroad. International banks in the UK can do the same in Europe.
The use of this passport, which allows them access to the single market of 28 nations, is under threat following the Brexit vote in June 2016.
Banks are approaching the point of no return for implementing Brexit contingency plans, according to the report. The lack of certainty over the UK’s status when it leaves the EU in March 2019 – and the dwindling chance of a formal trade deal – is forcing their hand.
“So long as the outcomes of the Brexit negotiations remain unpredictable, banks must act as if a hard Brexit is coming. This is driven by natural prudence and also regulators’ demands,” Oliver Wyman said.
“Over the next six to 12 months, however, 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,” the report said.
Investment banks that use London as an EU base have started to unveil plans to move essential staff to Europe. On Monday, Japan’s biggest bank, MUFG said it will set up an EU subsidiary.
Brexit will also be costly for European banks seeking to maintain access to UK markets. They will need to inject as much as €40 billion (£35 billion) of capital into their UK operations in order to keep doing business in the country after Brexit, according to a report from Boston Consulting Group last year.