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Frances Ball 26 Jun 2019 01:41pm

Brexit cost to UK financial services already £4bn

The cost of preparing to move people and capital to the EU before Brexit has already cost UK financial services companies close to £4bn in total, EY’s quarterly Brexit tracker has revealed

Around £1.3bn of the money already spent by some of the country’s largest financial services companies has been in legal advice, relocation costs, and contingency provision.

They have spent a further £2.6bn in capital injections on building up non-UK headquarters – most commonly in Dublin, or in Luxembourg.

Omar Ali, UK financial services leader at EY, pointed out that the capital spent on those new 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,” Ali said.

EY’s quarterly Brexit tracker monitors 222 firms, but only 13 have put a figure on the exact financial impact of Brexit on their businesses so far.

The actual overall cost is likely to be far higher and the current estimates “a drop in the ocean”, according to Ali.

“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,” Ali said.

Capital expenditure on planning has cost businesses, but so too has the impact of Brexit on the economy. Slow demand for credit and low interest rates have hit revenues, and EY have noted a further 13 companies reporting financial detriment as a result of Brexit.

Some companies, notably those in fintech, have raised concerns over challenges they face in fundraising and in deferred M&A. Together with the loss of talent and of access to the free market, they potentially face a heavy financial hit.

The extension of the Brexit deadline to the end of October has given some breathing room, and many have paused their planning efforts over the last three months.

The slowdown in planning meant that the number of planned job and asset moves remained unchanged at 7,000 and £1trn respectively since the last quarter. Nonetheless, around 1,000 jobs have already been moved to mainland Europe.

EY noted that many firms are reluctant to make final decisions on relocation until absolutely necessary.

Given the continued political uncertainty, most businesses have had to put temporary contingency plans in place, which are neither efficient nor cheap.

“A more sustainable approach will need to follow once the long-term level of UK/EU market access becomes clearer,” Ali said.

If Britain falls out of the EU without a deal, Ali says, then “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.”

“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,” Ali added.

Of the companies monitored by the tracker, 29 have either already moved some operations to Dublin, or are considering it. Luxembourg has attracted 23 companies, and Frankfurt 22.

The tracker monitors 143 investment banks, asset managers and insurance providers, 55% of which have publically announced their intention to move operations out of the UK.

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