World Economy

Banks’ Brexit Moving Costs Topping $500 Million Each

Banks’ Brexit Moving Costs Topping $500 Million Each
Banks’ Brexit Moving Costs Topping $500 Million Each

Banks poised to channel hundreds—if not thousands—of employees out of the UK expect their Brexit bills to reach $500 million or more, according to people with knowledge of firms’ contingency planning.

Costs are climbing in part as they find it more difficult than anticipated to persuade reluctant Londoners to move abroad and reckon with a shortage of experienced bankers in Dublin, Paris and Frankfurt, said the people, who asked not to be identified discussing confidential matters, Bloomberg reported.

“There’s no doubt that the costs are significantly bigger than the banks originally expected,” said Jon Terry, a partner and pay specialist at PricewaterhouseCoopers LLP. “There aren’t enough qualified people in local EU markets to meet the needs of the banks, so they are going to have to rely on moving more expensive staff from elsewhere. And a lot of those people don’t want to move.”

Banks may have to resort to costly relocation packages that include housing, private school costs and other perks to get Londoners to go. Someone who earned £1 million ($1.3 million) in the UK could easily cost £1.5 million in Paris or Frankfurt, after offsetting any increases in income taxes and other expenses, Terry estimated.

Moving a few hundred people into new offices in the European Union by April 2019 may add up to $100 million in personnel expenses alone, leaving aside the legal, technology and capital outlays related to setting up the entity, said one of the people. While few banks have provided public estimates of their costs, HSBC Holdings Plc said in July it faces a bill of as much as $300 million to transfer 1,000 staff to Paris, where it already has a fully-licensed subsidiary.

With the UK and EU deadlocked in negotiations over their future trading relationship, financial-services firms have little choice but to start shifting bankers, compliance staff and IT workers to the bloc. EU regulators have made it clear they expect banks to establish full-scale operations staffed by significant numbers of senior employees, not brass-plate offices with people commuting from London.

  Frankfurt Leads

Brexit is just one of the headaches for investment banks in Europe, which are trying to cut costs as record low interest rates and sluggish trading weigh on profitability. The industry also faces an estimated €2.5 billion ($2.9 billion) bill to implement the revised Markets in Financial Instruments Directive—the EU’s most ambitious overhaul of financial reforms to date—by the beginning of next year.

And in the UK, the government predicts it will cost lenders about £3 billion to meet a 2019 deadline to isolate their consumer-banking units from riskier trading businesses.

Germany’s financial capital has emerged as the biggest winner from Brexit, with more than 10 of the world’s biggest financial-services firms, including Citigroup Inc., Morgan Stanley and Nomura Holdings Inc. committed to establishing their new EU headquarters in the city. As many as 10,000 new jobs may be created in the city in the next few years, according to lobby group Frankfurt Main Finance.

Deutsche Bank AG alone plans to start shifting as many as 4,000 positions—or roughly half its UK workforce—to Germany as soon as next year, and to move large parts of its trading and investment-banking assets to Frankfurt as well, people familiar with the matter have said.

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