UK banks require some $50 billion in case of a hard Brexit

12 March 2019 Consultancy.uk

With the Brexit process due to come to an abrupt end in March, while no deal is in place, banks have been warned they face multi-billion pound investments if they are to avoid the implications of a Hard Brexit. At the same time, as many as 40,000 investment banking jobs could relocate to the EU as a result of Brexit.

As the UK prepares for the culmination of a traumatic divorce from the continent, the nation’s economy has suffered a contraction. While the UK’s service economy – including management consultancies – continues to enjoy solid growth, according to the Office for National Statistics, the wider country experienced a significant slowdown during the winter of 2018, as overall growth for the year fell to its lowest since 2012.

Now, insight from consulting firm Oliver Wyman has suggested that if it is to soften the blow of Brexit to the nation’s economy, Britain’s banks will require an additional cash injection after leaving the European Union. According to experts at the firm, businesses will need to find up to $50 billion to finance new European units in case of hard Brexit, or 30% of what the banking sector already commits to the region.UK banks require some $50 billion in case of a hard BrexitUnder current EU law, European banks can do business in the UK without separate capitalisation from the parent company abroad. British banks can do the same on the continent while the UK is part of the EU. After Brexit, however, operational costs are also anticipated to rise by $1 billion, as firms will need to duplicate their London operations on the continent.

According to Oliver Wyman, this will also see international banks need to shift as many as 40,000 investment banking roles to the mainland. This adds to a growing worry that Britain may see an exodus in its financial sector before deadline day, with the Bank of England predicting that as many as 5,000 City jobs will leave for the continent before the end of March.

Commenting on the news,  Matthew Austen, Head of European Corporate and Institutional Banking at Oliver Wyman, said, “At the moment what everyone is doing is planning to be able to continue doing what they already do after a hard Brexit. Once you have done that, if you have a strong performance in the US or Asia, then that is when you start to look at the post-Brexit foundations, and it will prompt you to look at what the right business mix is.”

In the summer, another report from Oliver Wyman revealed that Britain’s withdrawal will cost ordinary Britons dearly as well, even if the nation manages to replace its pre-existing continental trading relationships with new deals elsewhere. If Brexit sees the UK strike free trade deals with non-EU countries, it will still cost households an additional average of £134–758 every year, with that rising by 20-45% without the deals, at £245–961. A hard Brexit will "fragment the European wholesale banking market," and “will also make it significantly less profitable", the report cautions. 

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