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Dublin still the winner as Financial Services counts £4 billion Brexit bill

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Brexit has cost Financial Services firms £4 billion already, according to EY's Financial Services Brexit Tracker — and Dublin remains the biggest winner as firms begin to relocate.

  • Since the EU Referendum, UK Financial Services firms have disclosed £1.3bn of relocation costs, legal advice, contingency provisions, plus an additional £2.6bn for capital injections to scale new non-UK headquarters
  • In the past three months, there has been a three-fold increase in the number of statements from financial services companies announcing a tangible impact on their business as a result of Brexit
  • Many Financial Services firms have paused their Brexit planning following the extension of EU Withdrawal to October — the number of planned jobs (7,000) and assets (£1 trillion) moves have both remained flat over the last three months. But investment banks have already moved nearly 1,000 jobs to Europe
  • Dublin remains the most popular European city for relocation; 29 companies are considering or have confirmed the relocation of operations and/or staff to the Irish capital. However, in the last three months, Luxembourg has seen the largest increase in companies choosing to relocate staff and operations, with the total confirmed to date rising from 19 to 23

EY says that by 31 May 2019, the direct financial impact of Brexit on major Financial Services firms had reached nearly £4 billion. This sum includes £1.3bn cost of relocating staff and operations, legal advice, contingency provisions, as well as an additional £2.6bn for capital injections to scale new non-UK headquarters. Only 13 out of the 222 firms monitored by EY's Financial Services Brexit Tracker have put a figure on the direct financial impact of Brexit, with the actual figure therefore likely to be higher.

EY also found the number of planned jobs (7,000) and assets (£1 trillion) moves remained flat from the last quarter, suggesting that firms paused or slowed down their Brexit preparations once the extension to October was announced. Many firms appear reluctant to make the final decision to move until they absolutely have to.

The impact of Brexit on the economy has also affected the overall FS sector, with slow demand for credit and low interest rates hitting revenues. A further 13 firms, monitored by the EY Tracker, 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. In the past three months, the volume of all public statements on the impact on Brexit, from the 222 companies monitored by the Brexit Tracker, has increased threefold (20) from the previous quarter between December 2018 and February 2019 (6).

Omar Ali, UK Financial Services Leader at EY, comments: "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.

"Capital deployed for supporting new non-UK headquarters is value which is not being returned to shareholders or reinvested in UK businesses. Over time some of this capital may flow back to the UK, but currently is a net loss for our economy.

"The past three months have seen most firms to some extent pause their Brexit planning with both planned jobs and assets moves remaining flat. 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."

Relocations have begun but firms await clarification on final Brexit deal

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). The number of jobs that could relocate from the UK to Europe remains flat at around 7,000, according to the Tracker's analysis.

However, firms are beginning to provide greater clarity on the jobs which have already moved to Europe. Amongst the large investment banks monitored in the Tracker, nearly 1,000 jobs have already relocated to the continent. However, this figure represents just 15% of the total volume of investment banking staff currently marked for relocation to Europe from the UK.

Omar Ali says: "Given the tight time-frames and many unknowns, lots of Financial Service firms have prepared for a "no deal" scenario with temporary contingency plans, which are often inefficient and costly. A more sustainable approach will need to follow once the long-term level of UK/EU market access becomes clearer.

"In the event of a "no deal", some of the optimisation needed will no doubt move higher up the agenda. Overnight, UK firms would lose their ability to passport services and branches into the EU. Neither would they have any EU equivalence determinations to fall back on, putting them at an immediate disadvantage to other third countries, such as the US, Singapore and Hong Kong.

"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."

Dublin continues to attract Financial Services firms

Of the companies monitored by the Brexit Tracker, 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. That reflects recent company announcements confirming Luxembourg as a prime location for asset managers, whereas the companies choosing Frankfurt remain large investment banks.

Of the 143 investment banks, asset managers and insurers providers monitored by the Tracker, 55% (78 out of 143) have made public pronouncement on moving staff and/or operations out of the UK. Of the 42% (60 out of 143) which have not commented on staff or operational changes, the majority are large European or US-focused firms, which already have an established European footprint, or UK-focused firms without a large European customer base.

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