Europe’s fi­nance costs to in­crease

The Star Early Edition - - BUSINESS REPORT INTERNATIONAL - Bloomberg

BANKS may need to find $50 bil­lion (R655.3bn) of ad­di­tional cap­i­tal to sup­port the new Euro­pean units in the af­ter­math of a hard Brexit, ac­cord­ing to Oliver Wy­man, an in­ter­na­tional man­age­ment con­sult­ing firm. The ex­tra money is equiv­a­lent to 30 per­cent of the cap­i­tal that whole­sale banks cur­rently com­mit to the re­gion, the man­age­ment con­sul­tant stated in a re­port pub­lished on Mon­day.

A hard Brexit where banks lose priv­i­leged ac­cess to the EU’s sin­gle mar­ket would surely frag­ment the Euro­pean whole­sale-bank­ing mar­ket, Oliver Wy­man part­ners, in­clud­ing Matt Austen and Lind­sey Nay­lor, wrote in the re­port.

“It will also make it sig­nif­i­cantly less prof­itable. Banks could see two per­cent­age points knocked off their re­turns on equity.”

Alarmed by the lack of progress on EU exit talks, banks with op­er­a­tions in the UK are es­tab­lish­ing en­ti­ties on the con­ti­nent, with Frank­furt emerg­ing as an early favourite. It is es­ti­mated that lost ac­cess to the union could drive as many as 35 000 fi­nan­cial ser­vices jobs from Bri­tain, in­clud­ing up to 17 000 from whole­sale bank­ing.

The pres­sure for banks to boost their op­er­a­tions on the con­ti­nent will likely build as the Euro­pean Cen­tral Bank’s need for bet­ter su­per­vi­sion across the euro zone forces lenders to dis­play self-suf­fi­ciency and have strong gov­er­nance.

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