Europe’s finance costs to increase

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.