A Hard Brexit could cost banks €15 billion and execs are lobbying for EU access – Business Insider
LONDON — Restructuring operations around a hard Brexit could cost
UK banks €15 billion (£13.1 billion) and add €40 billion (£35
billion) to tier one capital requirements, according to a new
A report for the Association of Financial Markets in Europe
(AFME), compiled by the Boston Consulting Group and Clifford
Chance, suggests that Britain’s exit from the EU could be hugely
costly and disruptive to wholesale finance markets across Europe.
Philippe Morel, a senior partner at BCG, says: “We found that in
aggregate the cost, in the event passporting is lost, would be
significant, both in terms of transferring bank operations and
capital to new entities, as well as restructuring costs, and
ongoing higher capital needs.”
UK Prime Minister Theresa May has made it clear that she plans to
pursue a hard Brexit, trading off access to the EU Single Market
for sovereignty over borders and immigration. This would force
UK-based banks that conduct cross-border business to establish or
staff up EU subsidiaries to handle any business in the EU Single
“Approximately €1,280 billion of bank assets (loans, securities
and derivatives) may need to be re-booked from UK to EU27
following a hard Brexit, unless alternative arrangements can be
agreed,” AFME’s report says. “These assets are supported by €70
billion or approximately 9% of the (Tier 1) equity capital of the
The report, published on Monday, says that the securities and
derivatives trading operations of banks are most at risk of
disruption from a hard Brexit.
But the impact will not just be felt by banks, AFME warns.
Businesses of all sizes also face upheaval as restructuring and
regulatory uncertainty disrupts bank funding and lending to
companies. The report’s authors interviewed 62 CEOs and
treasurers of SMEs, large corporates, and investors, and spoke to
10 industry associations representing a wide range of companies
and sectors in multiple geographies.
Simon Lewis, CEO of AFME, says in the report: “Both SMEs and
large corporates also face potential disruption in the provision
of wholesale financial services which in turn will lead to a
higher cost of capital for businesses. That is why above all else
business would like the status quo preserved.”
AFME’s report comes as senior finance figures travel to Brussels
to lobby EU leaders for market access.
The Financial Times reports that former City Minister Mark
Hoban is leading a delegation calling for a free trade deal with
the EU for financial services post-Brexit.
The plan is said to have “unofficial support of senior figures in
Whitehall,” according to the FT. It comes amid a wider push for a
soft Brexit from a faction within the Tory party, in the wake of
Theresa May’s poor snap election performance.
Chancellor Philip Hammond has
publically made the case for a softer Brexit in the weeks
since the election and
the Guardian reported on Sunday that a “mood of realism” is
setting in for the government, with increasing acceptance of “the
inevitability of a painful trade-off between market access and
political control when the UK leaves the EU.”