Large investment banks in London could end up spending £804m ($1bn) collectively just to move 20% of their employees out of the City into another European financial centre.
It costs an average of £50k per employee in relocation costs to move employees to either Amsterdam, Frankfurt, Paris or Dublin, according to research from consultancy Synechron. This factors in relocations, hiring and redundancy expenses as well as property rental and other infrastructure costs.
Most investment banks have drawn up contingency plans to ensure that they can continue to access the single market after the UK’s vote to leave the EU. For now, not a single bank has come forward and said that they will definitely move a proportion of their business out of the City, but the longer the UK government delays in coming up with some clarity on what the vote means, the more likely these plans are to be implemented. After the first bank does so, expect others to follow.
J.P. Morgan’s CEO Jamie Dimon has said that around 4,000 jobs could go as a result of Brexit – or 21% of its 19,000-strong UK workforce – and reports before the vote suggested that 1,000 Morgan Stanley UK roles, or 20% of the total, will depart if Britain left the EU. HSBC also said that it could move up to 1,000 investment banking staff from London to Paris after a Brexit vote - again, this is a fifth of its City headcount.
If this 20% figure averages out across the main investment banks in the City, it will cost between £28-200m per bank to move their staff to another European city. The chart below illustrates how much it would cost each individual investment bank if they moved 20% of their London headcount overseas.
J.P. Morgan and Barclays are the biggest City employers, with around 8,000 employees, while Deutsche Bank and Citigroup both have 7,000 investment banking staff in London. Goldman Sachs has 5,500 people, while UBS has a similar number across its UK operations. Morgan Stanley and HSBC both have 5,000 people in their investment banking divisions in London, while Bank of America Merrill Lynch has 4,500. French banks BNP Paribas and Societe Generale as well as Nomura have between 2,500-2,800 London employees.
Suffice to say, investment banks are already cutting costs and would not welcome another cost that would hit their bottom lines when they're still reeling from regulatory and misconduct costs.
However, investment banks in London were already moving jobs out of the City to cheaper locations in a bid to bring down their compensation expenses and Brexit will only accelerate that. £50k per employee may seem like a big outlay, but the expectation is that banks will pay their employees less if they move to mainland Europe. As Jon Terry, head of the compensation practice at PwC said previously, banks have been under pressure to cut seemingly ever-buoyant pay in London - Brexit could bring about the next stage of compensation cost-cutting.