Brexit’s tab as banks leave for Europe: $1.2 trillion and counting

When a bank is tired of London, it is tired of life after Brexit.
When a bank is tired of London, it is tired of life after Brexit.
Image: John Sibley / Reuters
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In the wake of Brexit, at least 440 banks and financial services companies are moving some part of their operations and managed assets from London to cities in Europe, according to an analysis by New Financial, a London think-tank. But even as London’s status as Europe’s capital of finance is dimming, no other European city as yet stands to replace it, said William Wright, the founder of New Financial.

These 440-odd firms aren’t shutting shop in London altogether; in fact, Wright said, only three of these are moving wholesale. The remainder will continue to have large presences in London. “They may even keep London as some sort of headquarters,” he said. “But they’re all opening hubs in Europe, for regulatory purposes but also for practical reasons, to manage any future EU business.”

New Financial reckons that the firms will take around £900 billion ($1.2 trillion) in assets with them—roughly 10% of the UK’s banking system, a severe hit in terms of jobs as well as the country’s tax base. The report’s estimate is a rough one, Wright admits. But a more official figure has already been floated, he added, so “ultimately our number is irrelevant. I don’t say that often about our own research.” Andrea Enria, the chair of the European Central Bank’s (ECB’s) supervisory board, stated earlier this year that banks are preparing to move 1.2 trillion Euros ($1.44 trillion) from London to European cities.

“When Enria says this is going to happen, it isn’t speculation,” Wright said. “It’s because the ECB and other national regulators have already agreed that these assets are going to move. His figure must be the sum of what has already been agreed but not publicly disclosed.”

These relocating firms are scattering across the EU. Dublin has drawn a quarter of them, according to New Financial’s data, but Luxembourg, Frankfurt, Paris, and Amsterdam are also vying strongly for companies departing London. The distribution of the finance industry in the wake of Brexit is likely to be “multi-polar,” rather than concentrated in a single city as in pre-Brexit Europe.

To be sure, there are financial services firms moving in to London as well. In February, the financial consultancy Bovill found that around 1,000 firms from the EU, currently operating in the UK under a temporary permissions regime, are considering opening their first offices in the country.

But Wright thinks the firms that do follow through with new offices will be far fewer in number: perhaps 300-500, with much smaller volumes of assets under management when compared to the companies leaving the UK.

“As a sample, we looked at 30 banks currently using the temporary permissions regime to access the UK market, and without any physical presence as yet in the UK today,” Wright said. “With one exception, they’re all small companies. Two-thirds of them have balance sheets of less than 5 billion euros.” The really big banks and financial firms? They’re all already in London, for the most part—and they’re the ones looking towards Europe for new homes.