Brexit turmoil could cut investment banks' revenue by 11%

Investment banks could suffer an 11% decline in revenue this year, partly because of heightened market uncertainty following the Brexit vote, a report released on Friday (15 July) showed.

According to data published by consulting firm Boston Consulting Group (BCG), revenues among investment banks are expected to fall to $204bn (£153.6bn, €183.8bn), lower than a $212bn forecast released earlier this year and below the $228bn registered in 2015.

Revenues generated by mergers and acquisitions in Europe could plummet by as much as 60%, while revenue deriving from European equity markets has been forecast to decline by approximately 50% compared to last year.

The firm said that the volatility triggered by Britain's vote in favour of leaving the European Union "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 pressing concern for worldwide lenders is to ensure they retain access to the European banking passport system.

This allows banks and other financial institutions authorised to operate in an EU country, or a state member of the European Economic Area (EEA), to conduct business across the union. Brussels has made clear that if the UK wants to retain access to the banking passport system, as well as to the single market, it has to commit to guarantee freedom of movement for EU nationals.

A number of lenders, including HSBC, have already begun looking for suitable alternatives to London ahead of a potential move abroad. According to BCG, banks could have to fork out a combined £33bn to establish separately capitalised subsidiaries.

"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 consultancy firm said in the report. "Other banks already short on scale may lack the appetite to make additional investments and choose to exit certain business lines."