Impact of Brexit on UK financial services nears £4bn

Brexit has cost the UK financial services sector close to £4bn, despite companies pausing job and asset moves once the extension to October for leaving the EU was announced, according to analysis from EY which says the final spend may be much greater

The firm’s Brexit tracker calculates major financial services firms have spent £1.3bn relocating staff and operations, legal advice, contingency provisions, as well as an additional £2.6bn for capital injections to scale new non-UK headquarters, since the referendum result was announced in 2016. Only 13 out of the 222 firms it monitored have put a figure on the direct financial impact of Brexit, so EY says the actual figure is therefore likely to be higher. 

Omar Ali, UK financial services leader at EY, said: ‘So far, only a small proportion of the largest, listed firms have put a number on potential costs, which means this number is likely to be a drop in the ocean as firms prepare to do business post-Brexit. 

‘The financial impact of Brexit is beginning to fall to the bottom line, and firms are now making a direct link between financial performance and the tangible commercial impacts of Brexit.’

EY found the number of planned jobs (7,000) and assets (£1 trillion) moves remained flat from the last quarter, reflecting that firms paused or slowed down their Brexit preparations once the extension to October was announced. 

Ali said: ‘However, in the last few weeks we have seen some firms restarting their programmes and we expect preparation activity for a no-deal to increase markedly throughout the summer.’

In the past three months, the volume of all public statements on the impact on Brexit from the companies monitored has increased threefold to 20, up from six in the previous quarter between December 2018 and February 2019. 

EY says 13 firms reported some financial detriment from Brexit, without quantifying the cost. These announcements covered share price falls, lower profits, dividend cuts, a slowdown in lending, loss of customers and reduced capital market activities. 

Another 20 firms have made public pronouncements on the impact of Brexit, without going into more detail. Amongst fintech companies, fundraising challenges and deferred M&A were the most voiced financial concerns, alongside the potential loss of talent and access to the free market.
In addition, 26 firms have spoken about Brexit having a positive impact on their business, with a further 12 firms flagging short term opportunities from the UK leaving the EU, mainly around benefitting from any market volatility.

The number of companies which have publicly confirmed, or stated their intentions, to move some of their operations and/or staff from the UK to Europe has risen slightly quarter on quarter to 41% (91 out of 222) from 39% (87 out of 222).

Dublin remains the most popular location with 29 companies saying they are considering or have confirmed relocating operations and/or staff to the city. Luxembourg has made the largest gains over the past three months, attracting four more companies to a total of 23, just ahead of Frankfurt which has attracted 22 firms to date. EY says Luxembourg is a prime location for asset managers, whereas the companies choosing Frankfurt remain large investment banks.

EY’s analysis suggests that given the tight timeframes and many unknowns, many financial service firms have prepared for a ‘no deal’ scenario with temporary contingency plans, which are often inefficient and costly.

Ali said: ‘The timescales around moving on from a “no deal” also look challenging. Along with possible political fallout, the EU’s mechanisms for coming to new trading arrangements are complex, requiring unanimity and individual approvals from certain members states’ parliaments. All of this suggests further significant restructuring for firms in the aftermath of a no deal exit.’

By Pat Sweet

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