UK : Investment banks face 11 pct hit to revenue amid Brexit turmoil
LONDON : Investment bank revenues are likely to fall about 11 percent this year, due in part to uncertainty and lower client activity following Britain’s surprise decision last month to leave the European Union, according to Boston Consulting Group (BCG).
BCG said in a report released on Friday that revenues were likely to fall to $ 204 billion this year, down from $ 228 billion in 2015 and compared with an earlier forecast of $ 212 billion.
Revenues related to European mergers and acquisitions could drop as much as 60 percent, while those related to European equity capital markets may fall as much as 50 percent, it said.
The disruption from Brexit “will likely affect both the short-term revenue outlook, through market shocks and loss of business confidence, and the long-term revenue outlook through disruptive business transformation,” the consultancy said.
Britain has to negotiate new trading terms with the European Union after it voted in a referendum last month to leave the bloc. Banks such as HSBC have said they would shift staff to the EU unless broad “passporting” rights were kept.
Banks registered in the Britain are currently granted a “passport” to offer their services across the EU from their UK bases, saving money on capital requirements and other costs by not having to set up in each member state.
Setting up separately capitalised subsidiaries could cost banks up to an extra 40 billion euros ($ 44.5 billion), BCG said.
“Banks that are active in asset classes requiring a local presence within the EU may no longer see a reason to maintain a London operation, and will thus shift operations to a new hub,” the report said.
“Other banks already short on scale may lack the appetite to make additional investments and choose to exit certain business lines.”