Brexit could result in 40,000 investment banking jobs, half the UK wholesale banking sector workforce, being moved overseas. Are the fears exaggerated? We investigate.
Brexit has rarely been out of the news since the UK voted to leave the European Union (EU) in June.
Prime Minister Theresa May triggered Article 50 signalling the UK’s exit from the EU on 29 March. The UK is scheduled to leave on 29 March 2019.
Confusion over the terms of the UK’s withdrawal − ‘soft Brexit’ versus ‘hard Brexit’ – the government’s official policy and how long the process will take have added to the uncertainty.
And financial markets hate uncertainty. As a result, business leaders for the most part favour retaining close ties with Europe.
Now, a new report suggests 40,000 investment banking jobs could be lost unless the UK negotiates more favourable Brexit terms.
Brexit impact on jobs in The City
Banks are reportedly already planning for a worst-case scenario where they lose access to the European single market in 2019.
“The banks are working on ‘no regrets’ moves, which increase options but don’t cost that much either to undertake or to reverse,” Matt Austen of cosultancy Oliver Wyman, which compiled the report, said in Fortune.
“Once you get to the point of putting balance sheet and capital into an entity, it becomes more committed. The economics really start to bite when banks start to deploy financial resources.”
Initially, up to 17,000 banking jobs could move out of London but that number could more than double to 40,000. In other words, around half the UK’s wholesale banking sector workforce, according to Oliver Wyman.
Support from US banks
Fortune says that Citigroup, Bank of America, Morgan Stanley and Barclays have all indicated they will set up EU subsidiaries. However, HSBC is reportedly moving up to 1,000 jobs to Paris.
“Most are looking to minimise expense and disruption by relocating as little as possible in the first instance,” Austin said.
He added that the latest banks can afford to wait is next summer to move staff in advance of March 2019.
In October, a report commissioned by finance industry lobby group TheCityUK estimated that Brexit may cost the UK 75,000 jobs. As a result, the government could lose £10 billion in tax revenue.
Brexit: risks vs rewards
Are the fears exaggerated?
“Even if there’s a hard Brexit, my expectation would be at least in the medium-term that [London] would continue to be Europe’s leading financial centre,” Thomas Sampson, an assistant professor at the London School of Economics, told Finance Director Europe.
Sampson cites issues such as ‘passporting’ − the ability of banks outside of the Eurozone to mount transactions within the single market – as key to keeping banks in London.
Plentiful office space, supporting infrastructure and the difficulty of moving institutions from one financial centre to another also make the UK capital attractive to financial services companies.
“It wouldn’t be that all the businesses operating there would be moving out of London but just some aspects that couldn’t be done outside the EU,” Sampson said.
However, he concedes that a ‘hard’ Brexit could result in a 22% fall in FDI for the UK. That amounts to an overall drop in £2,000 in GDP for each household.
“There’d be some interesting differences across some sectors, but I certainly think if we follow a hard Brexit, it’s not going to make the UK a more attractive place to invest,” Sampson said.
Read the full interview with Thomas Sampson in Finance Director Europe.
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