Brexit: EU businesses considering building fresh economic hub in Paris
If the words of the HSBC Plc’s chief executive, Stuart Gulliver, on Monday that creating a new hub in Paris could cost up to $300 million, is anything to go by, there are chances that key European Union (EU) leading businesses that hitherto had their hub in London and parts of Britain, will begin relocation plot to Paris, France.
Though analysts say the reorganization is likely to eat into banks’ profits. Oliver Wyman estimates UK based investment banks would need to find $30 billion to $50 billion of extra capital to support new European entities, if the UK cuts all ties to the EU. That is equivalent to 15% to 30% of the capital currently parked in the region by investment banks. This could add up to a 4% increase in annual cost base, equivalent to around $1 billion across the industry.
Apart from HSBC boss proposal, a report by Oliver Wyman has said “With the United Kingdom government negotiating an exit from the European Union, there is a chance that banks will lose their rights to sell products to EU clients”.
Accordingly, banks are putting into place contingency plans to build out their operations in the trade bloc. Based on those initial plans, Oliver Wyman says 15,000 to 17,000 wholesale banking jobs are set to be relocated into the EU. Over the longer term, that number could rise to 40,000, the firm says.
Part of their plans is to move economic hub of EU currently at London to Paris, but analysts say with the growing threat of terrorism, the relocation may cost much.
However, observers are upbeat that the traditional hospitality of Paris and French pioneer business algorithm will drive the new hub proposal.
Currently, the report said there are around 560,000 people employed in banking in the UK, so such a departure is unlikely to mortally wound the country’s reputation as a financial hub. But it could reduce the efficiencies of having Europe’s investment banking services located in one place, the firm added.
The report noted that “We find uncertainty about the outcome of the Brexit negotiations means wholesale banks are trying to restrict their initial responses to ’no regrets’ moves: actions that increase their options but cost relatively little, such as applying for licenses in EU jurisdictions,” the group said in a report. However in the next six to 12 months banks will have to start making more expensive decisions, such as relocating staff. Already, banks are warning about taking a Brexit hit.
