Thursday 14 December 2017

UK 'could lose 40,000 wholesale banking jobs' with hard Brexit

The headquarters of the European Central Bank (ECB) (R) is seen next to the famous skyline in Frankfurt. Photo: Reuters
The headquarters of the European Central Bank (ECB) (R) is seen next to the famous skyline in Frankfurt. Photo: Reuters
Colm Kelpie

Colm Kelpie

The UK could lose up to 40,000 jobs in the wholesale banking sector to other EU destinations under a hard Brexit, a new report has concluded.

The sector could also have to find up to $50bn of extra capital to support new European entities, equivalent to between 15pc and 30pc of the capital currently committed to the region by wholesale banks, the study by consultancy group Oliver Wyman said.

It also noted that Frankfurt and Dublin are emerging as the main destinations for potential new sales and trading entities, along with Paris, Luxembourg, and Amsterdam.

It comes just days after the IDA said more than 15 global financial institutions have announced their intentions to set up or expand their operations in Ireland since January, including JP Morgan, Bank of America, Citi and insurer Legal & General.

"In their planning, banks have found each jurisdiction to have particular advantages and disadvantages," the report noted.

"Frankfurt is seen as attractive on supervisory stability and influence.

"Dublin's tax advantages are being weighed up against a less convenient location and potential issues around relocating large and complex balance sheets.

"Paris and Amsterdam are considered attractive and convenient locations and are already home to several major wholesale banks."

The report pointed out that last year Oliver Wyman estimated that a hard Brexit, in which UK-based banks lost access to the EU, would drive 31,000-35,000 jobs out of the UK across all financial services.

Of these, 12,000-17,000 would be in wholesale banking.

"Based on banks' subsequent disclosures and our engagement across the industry, we believe this remains a sound estimate of the impact in the medium-term," the report noted.

"However, as we also found in our prior work, the movement of jobs from the UK could ultimately be greater. Management teams may find commercial reasons to relocate more activity to the EU over time, for example to encourage collaboration among salespeople, traders, and risk managers, while maintaining close proximity to clients."

It said the EU faces a number of broader policy questions about the future structure of the Euro financial system and whether elements of it, such as clearing, can continue to be provided from London.

"We continue to estimate that such a long-term shift in the wider financial markets ecosystem towards the EU could move around 35,000-40,000 jobs from the UK to the EU in wholesale banking alone," the consultants said.

But it said that despite plans to relocate jobs out of London, at present none of the other European banking centres seem set to replace London as a pre-eminent global financial services hub.

"So long as the outcomes of the Brexit negotiations remain unpredictable, banks must act as if a hard Brexit is coming," the report added.

"This is driven by natural prudence and also regulators' demands.

"As a consequence, some of the fragmentation and inefficiency that would result from a hard Brexit will likely occur even if a closer relationship between the UK and EU is ultimately negotiated."

More broadly, the report said, the future landscape of European financial and capital markets remains uncertain and will not be shaped by banks' location decisions alone.

Irish Independent

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