LONDON (Reuters) - Global banks must plan for a “hard” Brexit or risk breaching regulatory requirements and disrupting business, according to an industry report seen by Reuters, the first since Prime Minister May said she would take Britain out of the single market.

A sign for Bank Street and high rise offices are pictured in the financial district Canary Wharf in London October 21, 2010. REUTERS/Luke MacGregor

Banks’ transformation programs are so complex and lengthy that in some cases they may need to devise two-step interim contingency plans in order to mitigate the risks of disruption, the report says. It was prepared by consultancy PwC for industry body the Association for Financial Markets in Europe (AFME).

The process will require more clarity from regulators in EU countries where banks might seek a new base and need approval of any interim business models, the report says, noting the lack of visibility on future trading relations between Britain and the EU with negotiations yet to begin.

“The report, ‘Planning for Brexit – Operational impacts on wholesale banking and capital markets in Europe’ aims to provide policymakers and other industry stakeholders, both in the EU27 and the U.K., with a fact-based analysis of how these challenges are likely to affect the financial services industry,” a spokeswoman for AFME said in an emailed statement.

The report analyzed information garnered from 15 banks of varying sizes and from different home regions on their Brexit planning measures and also looked at 8 case studies of banking transformation programs in the past that have taken longer than 2 years.

The findings offer stark reading on what lies ahead for banks as they attempt to devise strategies to cope with any impending disruption to their business once Britain leaves the European Union, mapping out 25 key business activities that will be impacted from staffing to establishing new legal entities.

Several major banks have already warned that they will each have to move thousands of jobs to another EU country in order to continue providing services to European clients once Britain leaves the bloc, after Prime Minister Theresa May said that Britain would leave the single market.

Banks are already implementing “no regrets” contingency measures such as retaining legal entities, the report finds.

In order to adapt to the post-Brexit landscape banks will need to set in motion a wide range of interacting transformation programs ranging from restructuring legal entities, gaining regulatory approvals, connecting to new market infrastructure and moving staff to new locations.

Some banks’ contingency plans will be achievable within two years whilst others could take at least 4 years to implement, depending on their current European footprint.

A transition period of 3 years would alleviate some of the pressures posed in implementing the necessary changes as well as support from regulators in Europe to speed up license approvals and to avoid any uncertainty that could lead to duplication costs and avoidable disruptions.</s>The banking industry have been asked to prepare for a "hard" Brexit in a PwC report titled, Planning for Brexit — Operational impacts on wholesale banking and capital markets in Europe. It aims to provide policymakers and industry experts information on how to handle Brexit, as well as addressing some of the likely challenges that the financial market will face.

A spokesperson for AFME has confirmed that Brexit will be a highly complex transformation for wholesale banks.

"Firms will need to execute Brexit transformation programs which will extend beyond Article 50 timescales and in many cases up to three years after Brexit has been completed; or even longer, if the post‐Brexit trading relationship between the EU and UK remains unresolved," a spokesperson for AFME told Sputnik.

The UK parliament entered a second day of debate on Wednesday, February 1, as to whether Britain should trigger Article 50, the two-year process by which the country leaves the European Union.

​Sources close to the UK government say that the likelihood of the bill being passed is high, given the fact that the Labour and opposition leader Jeremy Corbyn has ordered party MPs to vote for triggering Article 50 under the threat of being sacked.

Once Article 50 is triggered it then allows for the negotiation process to start. Given that the UK PM Theresa May has already expressed a preference for a "hard" Brexit, the financial sector and businesses in the UK must be prepared for the outcome.

​Banks based in London have five years overall to prepare and submit documents and business models, however most banks, if not all, are working towards a two-year plan, that will keep them in line with Article 50 regulations.

A spokesperson for AFME said that when banks execute their transformation programs, they will be heavily dependent upon a timely approval process of licenses by their new EU regulators.

According to AFME, banks are currently proceeding with a two‐year tactical plan to maintain continuity of service. However, these plans are likely to change, as an agreement of a new business model needs to be reached with EU regulators, who will have to approve it before the UK leaves the EU.

"Banks need to submit, as soon as possible, the structure of any interim business models that may be deemed acceptable immediately post‐Brexit," a spokesperson for AFME told Sputnik.

The banking industry has been in limbo since the EU referendum, as a result certain banks have decided to leave the UK. According to Anthony Browne, the chief executive of the British Bankers' Association, major banks are considering leaving the United Kingdom in the first quarter of 2017, while small banks plan to start relocations before Christmas.

​"For banks, Brexit does not simply mean additional tariffs being imposed on trade — as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services," Browne said, as quoted by the Observer.

A "hard" Brexit would deprive the country of the access to the EU internal market and the customs union, which could potentially result in tariff and non-tariff restrictions.</s>If the Brexit supporters and populist press have acclaimed the offensive tone adopted by May and her preference for a ‘hard Brexit’, the truth is that the British prime minister is driving her country down a hazardous road and does not have the upper hand in the upcoming negotiations with the EU.

Both the British and the European economy may continue to suffer as a result of this unexpected divorce, but the UK has more to lose in this conflict than the EU, which has displayed an impressively unified front so far in this conflict.

May’s speech may have sounded convincing to her supporters, but it was plagued by contradictions. Her objective was to demonstrate that she is capable of declaring Britain’s ‘independence from Europe’, as demanded by Brexit voters, while securing most of the economic benefits her country enjoyed from its EU membership.

As such, she announced the decision to leave the single market, but also underlined the need for targeting reciprocity in future economic agreements with the union. She called for a decrease in the number of European workers in the UK, but admitted that her country desperately needs educated immigrants.

And the paroxysm of contradiction was reached when she declared that she would negotiate for the permanence of duty free exports towards the EU, while rejecting the common tariffs with other countries, such as the United States.

However, European countries are unlikely to display any leniency towards London. A strict enforcement of the treaties previously signed between London and the EU would categorically prohibit the UK from negotiating any bilateral trade agreements before the end of the Brexit negotiations.

Moreover, Guy Verhofstadt who heads the Brexit talks on behalf of the EU, is preparing to present an invoice to the UK in order to settle all current British commitments to European policies. These short-term challenges may be hard to swallow for the UK, but the biggest threat for the country’s economic stability will the long-term impact of Brexit on its economy.

All eyes are now on London and the future of the capital’s financial institutions that have been the source of a significant percentage of the British wealth over the past few decades. A hard Brexit means that British firms will be stripped of their European financial passports and their ability to clear Euro-denominated securities.

As a result, Douglas Flint, the chief executive of HSBC, confirmed that his bank would probably transfer its clearing operations to its Paris office. This is significant as, although security-clearing only represents a few thousand jobs, they are at the centre of several key banking operations - syndication, risk management, cash flow optimisation, etc.

If the British economy has not felt yet the impact of the Brexit vote, it is due to the collapse of the British currency that boosted exports and tourism. But those positive outcomes are always short-lived. The simultaneous increase in import prices in energy and technology will eventually reduce the structural competitiveness of British companies as well as their capacity to invest overseas.

On the political front, May purposely forgot to mention the impact of Brexit on the calls for independence in Scotland which may organise a new independence referendum as early as next year. The reintroduction of a formal frontier between Northern Ireland and the Republic of Ireland also holds the seeds of renewed conflicts.

However determined and confident supporters of Brexit may appear, their country remains in a position of weakness after the EU membership referendum and has much to lose in these negotiations. Neither the Germans, nor the French is willing to be bullied around, and the Britons are about to discover the cost of their decision.

This article has been excerpted from: ‘Why a hard Brexit will cost the UK more than Europe’.

Hard Brexit was posted in Opinion of TheNews International - https://www.thenews.com.pk on January 30, 2017 and was last updated on January 30, 2017. This news story is related to Print/182675-Hard-Brexit/ - breaking news, latest news, pakistan ne. Permanent link to the news story "Hard Brexit" is https://www.thenews.com.pk/print/182675-Hard-Brexit.</s>It could take European Union banks up to five years to overhaul their operations and acclimatise to a new post-Brexit trading landscape, according to a new report commissioned by the Association for Financial Markets Europe (AFME).

While yet to be fully released, the report, conducted by PwC, features interviews from 15 AFME members, some of the world's largest investment banks, and is thought to be the most in-depth analysis of the future of the EU banking industry since the U.K.'s shock Brexit vote.

It suggests that it could take banks up to three years or more to transition to a new business environment. This is on top of the two-year negotiation period scheduled once the U.K. triggers Article 50 and formalises its intent to leave the EU.

The report garners feedback from banks spanning a range of sizes and activities and covers an even split of EU27 headquartered, UK headquartered and non-EU headquartered banks.</s>Europe gets creative to win banks after Brexit

LONDON/FRANKFURT Feb 1 (Reuters) - Regulators in European countries competing for post-Brexit banking business are offering London-based banks a range of short-term workarounds to help them relocate, bankers, regulators and lawyers say.

Global banks have warned they might have to move their European bases from Britain if its departure from the European Union means they lose "passporting" rights to operate across the bloc under the supervision of just one member state's regulator.

Brexit negotiations have yet to start and will take years but big centres like Frankfurt and Paris, as well as smaller ones like Dublin, Amsterdam and Luxembourg, are encouraging banks, insurers and fund managers to consider moving to them.

Financial watchdogs have told banks they will need to create more than so-called brass plate operations; they will have to have a certain amount of capital, senior staff on the ground and approved risk models to get a licence to operate across the EU.

They are looking at ways to make the transition easier, however by allowing institutions which typically have very complex operations to move fewer jobs and assets over from Britain in the near term.

Proposals outlined to Reuters by people involved in talks between regulators and banks include 'back-to-back' trades, where a deal done on the continent could be processed in London, and licensing certain activities more quickly than usual.

"Various jurisdictions are going to try to make it as attractive as possible to set up there," said Mark Compton, a financial services lawyer at Mayer Brown in London.

"They will try to be as flexible and accommodating where they can. But it will vary from jurisdiction to jurisdiction, the appetite of the regulator and the constraints put on them by central authorities."

While the European Central Bank is chiefly responsible for supervising big banks in the euro zone, national authorities such as Bafin do much of the day-to-day supervision, especially of smaller lenders.

The ECB must first grant the license for, say, a London-based bank that wants to move operations to Frankfurt. Bafin could afterwards show some flexibility in its supervision, so long as this is in line with European rules.

German regulator Bafin met about 50 envoys from roughly 25 foreign banks on Monday to explain how they could move business to Europe's biggest economy after Britain leaves the European Union. Many asked how large a German operation should be to win the regulator's blessing.

Bafin's Peter Lutz, who met the banks, said after the gathering that it would take into account that a bank was gradually building up its business, as long as the plan was to eventually establish a substantial operation.

Bafin could adjust its demands, for example, as to how many people must be based in, say, Frankfurt or how much capital is needed – at the outset.

"We are talking about big internationally active banks," he told reporters, adding that he was open to arrangements during a gradual transition from London to Germany. "Naturally, we can talk about transitional arrangements."

One official said one such possibility is the limited and temporary use of so-called 'back-to-back' arrangements, where a bank in Germany gives, say, a loan on the continent but processes it through its London head office.

"Part of the new strategy (of Bafin) is to show banks that the regulator is open to speak and discuss new policy tools for foreign banks," the official familiar with the matter told Reuters on condition of anonymity.

"The overall question with regulators is how far can services be outsourced to London initially."

This could help banks in London stagger the migration of staff and systems.

French regulators have also spoken to banks about simplifying and accelerating the licensing process for financial institutions considering moving operations due to Brexit.

"Banks are doing contingency planning, which means that in a very short period of time they will need to transfer some quite significant operational and IT teams," a source at a French financial regulator said.

"It is logical that it will happen in a progressive way and that technical constraints are taken into account (by a regulator)."

Irish regulators, too, are considering the practical and logistical constraints firms face in having to do a number of things in a relatively short time frame, Gerry Cross, Director of Policy and Risk at Ireland's Central Bank said last week.

"We are open to thinking constructively about how this practical sequencing challenge might be addressed, how things might be arranged so that the various objectives can be met, without of course undermining our commitment to our responsibilities," Cross said.

European regulators need to clarify which transitional arrangements will be approved and offer flexibility on an 'interim fix' at the onset of the Brexit process or risk disruption to financial markets, the Association for Financial Markets in Europe (AFME) industry body said in report this week.

"Some banks are also considering migration to a short-term or transitional way of operating in order to be ready for Brexit," the report, which analysed the Brexit planning measures of 15 banks of varying sizes and from different home regions.

"Their plans are therefore dependent upon regulatory approvals for transitional operating arrangements."

Investment banks with large sales and trading operations, which buy and sell foreign exchange, debt, equities and other financial instruments for clients across Europe, require specialised talent and regulators who are familiar with sometimes esoteric financial instruments.

Approving for example, complex internal risk models used by banks to calculate risk on their balance sheets, requires expertise and can have an impact on how much capital needs to be held to back risky assets.

This is another area regulators could initially be flexible on, lawyers say, given that some regulators need to build up their own expertise on the issue.

If these workarounds are approved, it would mean more banking staff and assets would stay in Britain for the short-term and UK regulators, used to supervising complex investment banks, would continue to have an influential role over the EU's financial markets.

The banks are making the most of the competition.

"Lots of member states are very keen to have financial firms," said one banking source speaking on condition of anonymity as discussions are private.

"We are doing a lot of work with different regulators on accepting various solutions and interim arrangements. Regulators are having to be a little imaginative.”

For now, regulators say they will require senior risk managers in situ as well as some infrastructure, but staffing could be built up over time whilst banks scout for offices and local staff.

"There is the expectation by regulators of substance on the ground," said one legal source. "The million dollar question is how much substance does there need to be."</s>The option is an extreme scenario under consideration by some Wall Street firms if the terms of an exit, currently a matter of speculation, leave financial services companies in Britain unable under their current set-ups to do business inside the EU, according to discussions Reuters had with several U.S. banks and their lawyers.

The scenarios being studied by taskforces at U.S. banks underscore the extent to which the London operations of non-European banks are linked to business on the continent.

In particular focus are the banks' market operations, as trading of most European securities is regulated at the EU level but conducted by many investment banks mainly out of London.

The five largest U.S. banks employ 40,000 people in London, more than in the rest of Europe combined, taking advantage of the EU "passporting" regime that allows them to offer services across the bloc out of their British hubs.

Having to reorganize business in order to set up new continental European outposts — which U.S. banks say is a worst-case scenario that they are being forced to consider — would be so costly that it would make some rethink their commitment to the bloc altogether.

"The costs may lead some banking groups to reassess how important Europe is in the context of their global business and what sort of presence they wish to maintain post-Brexit," said Edward Chan, a partner at the law firm Linklaters, which has been advising banks on contingency arrangements.

European integration has served U.S. investment banks well. The move to a single currency made it easier to take on the bloc's own banks, benefiting from economies of scale by trading in euros rather than competing with, say, Societe Generale for franc-denominated business or with Deutsche Bank in deutschmarks.

The big five U.S. banks have all been gaining market share while European investment banks restructure. In the first quarter, JPMorgan, Goldman Sachs and Morgan Stanley took the top three positions for investment banking fees in Europe, Middle East and Africa (EMEA), according to Thomson Reuters data.

But it is outside the euro zone, in the City of London, that they base their EU businesses. The investment bankers heading up M&A advisory teams for the likes of Italy and France all tend to live in London rather than Rome or Paris.

Of the just under 6,500 staff who handle Goldman Sachs International's broker-dealer services for all of EMEA, a region that brings in around 35 percent of group revenue, fewer than 1,000 are based outside Britain.

These UK outposts have increased in importance since the 2008 global financial crisis, when banks tried to simplify their international structures into a few main hubs.

The major U.S. banks also use their London entities to help them avoid the brunt of new U.S. trading rules brought in with the Dodd-Frank regulation, booking swap trade agreements with non-U.S. counterparties in Britain rather than in America.

Now, the prospect of an exit from the European Union has spurred these banks into action, albeit only on paper for now.

Four Wall Street banks told Reuters how, with the outcome of the vote and its consequences wide open, they have been drawing up contingency plans as part of their own risk planning and at regulators' behest.

One bank said it had a central taskforce of 20 people drawn from each business unit and functions such as human resources and information technology.

The alert level has not reached that of the Greek debt crisis, when a similar committee would sit every two or three days, but the group does meet weekly.

If Britain were to remain a member of the European Economic Area (EEA), which gives Norway, Iceland and Liechtenstein access to the EU's single market, its financial companies would retain passporting rights for EU countries, although Britain would have no say in the formulation of EU rules.

But if Britain quit the EEA, UK-based firms wanting to operate in the EU would face an "equivalence" test to prove to Brussels that their home rules are as strict as those in the EU.

They would also probably need a locally capitalized subsidiary in the EU, more expensive than running a branch.

Leading Brexit campaigner Boris Johnson has said Britain could create a "Britzerland", based on Switzerland's bilateral treaties with Brussels.

However, Swiss financial institutions do not enjoy passporting rights within the EU, and Swiss investment banks, like their American peers, base most of their EU operations in London.

The bank with the 20-strong taskforce currently has no established entity in mainland Europe to conduct capital markets business from.

An executive said it would have to consider whether it was worth the trouble of creating a parallel broker-dealer operation within the euro zone with billions of dollars in capital.

Other U.S. banks say the region is too important to turn their back on, but that a messy post-Brexit agreement would require a major reorganization.

JP Morgan Securities Plc, the London subsidiary that houses most of the bank's capital markets business in EMEA, says its analysis shows that, under some scenarios, its UK-based subsidiaries "might not be able to perform new business with European Union-based clients directly". To keep that business, it would have to change its legal entity structure and its booking model.

JP Morgan International Bank Plc, which looks after the group's private banking clients in EMEA, said it might be required to "transfer existing and new business with continental European clients into a European Economic Area affiliate".

Chan, the Linklaters lawyer, said a reorganization like the one JP Morgan is hypothesizing could costs millions:

"New regulated entities will need to be licensed, capitalized and funded. People will need to be moved, real estate will need to be found, IT and other systems will need to be procured, and not every location will have the right infrastructure."

Some banks hope they could move just a few staff to smaller, existing units they already have in the euro zone, and obtain new licenses.

JPMorgan, for example, has a smaller banking entity in Frankfurt and a unit housing asset management business in Luxembourg.

Citigroup has said it might have to reallocate certain businesses back into the EU, but would not "hot foot" it out of Britain.

It does have a large banking subsidiary in Dublin, but that could not accommodate its broking or trading businesses in the region, which under U.S. regulation have to be housed in entities separate from deposit-taking operations.

There are, in any case, concerns that EU regulators would be reluctant to let banks keep the bulk of their staff in London. Officials at the European Central Bank have already indicated they would want euro-denominated trading - most of which happens in London - to move inside the euro zone in the event of a Brexit.

Despite the growing nervousness, the U.S. banks say they have not yet made any firm investments in alternative outposts or property in the euro zone, preferring to wait for the vote.

Real estate agents in Frankfurt and Paris say there has been no rise in demand from banks, with prime rents in the City of London up 7.7 percent year-on-year in the first quarter, compared with 1.3 percent growth in Frankfurt and zero in Paris.

"Banks are doing a lot of internal planning for various different business streams, but they need to balance this against the fact that the cost and effort could be unnecessary if there is a 'Remain' vote - and also, if there is a 'Leave' vote, we do not know what the future regime will look like," said Michael Thomas, partner at the international law firm Hogan Lovells.

"We get questions from clients, but people are generally waiting to see which way the vote goes before lighting up budgets."</s>The share slide underscores the problems that could face all European lenders if Britain votes to leave the EU next week, a step that the Bank of England warned would harm not just the UK economy but also spill over globally.

Europe's banks, still grappling with billions of euros of loans that may never be repaid as the region wallows in the doldrums and unemployment remains stubbornly high, are again in the front line of investor concerns.

"The global economic and political outlook is dark," said Chirantan Barua, an analyst with Bernstein. "Brexit is fuelling uncertainty and will have ripple effects across Europe. With so much uncertainty, why would you buy a bank stock now?"

A regional index of euro zone banks .SX7E fell to its lowest level since August 2012, while shares in Germany's Deutsche Bank ( ) hit a record low. Banks are often a bellweather of economies and highly sensitive to market stress.

The stock moves illustrate a growing sense of alarm ahead of the June 23 referendum, which will determine Britain's future in trade and world affairs as well as that of the 28-member bloc.

This could have a knock-on effect on banks, which are still struggling with the aftermath of the financial crash.

With polls suggesting the chances of a 'Brexit' are increasing, investors took little consolation in the preparations that have been made by central banks.Officials told Reuters this week that the European Central Bank would publicly pledge to backstop financial markets with funding in tandem with the Bank of England, should Britain quit.

And Switzerland's central bank pledged to counter any surge in an already overvalued franc - seen as a safe currency in times of uncertainty.

SNB board member Andrea Maechler said the central bank had a team following Brexit developments 24 hours a day.

But were a recession to follow a British split, there would be little central banks, which have already cut borrowing rates to rock bottom and flooded markets with fresh money, could do.

Broader European financial stocks .SX7P also dropped, bringing year-to-date losses to roughly 27 percent, making them the region's worst performing sector.

"The uncertainty is regarding the future of the UK in Europe but also probably regarding the future of Europe," said Barclays head of euro zone research Philippe Gudin de Vallerin.

"There is still some worry about banks and the extent to which banks have really been cleaned up and the possible reaction of banks to a UK exit."

The problems facing Europe's banks, however, go far deeper than Brexit. It has proved exceptionally hard, for instance, to kick-start borrowing in the euro zone because confidence has sunk to a low ebb and bad loans from the past are piled high.

Earlier this week, Yves Mersch, one of the European Central Bank's top officials, summarised the problems of the sector after the financial crisis. "We all want stability, but we should not want the stability of the graveyard."

Rating downgrades are also a threat. A Standard and Poor's model using Credit Default Swaps (CDS) shows that, over the last week, financial markets have started pricing Deutsche Bank's debt as if it were 'junk' grade.

While the bank's official credit rating does not have such a low status, the cost of insuring against a default on its debt, as measured by the CDS price, shows that investors see a higher risk of not getting repaid.

Swiss banks, which were also badly hit by the financial crisis, face further challenges too. The SNB said UBS ( ) and Credit Suisse ( ) would likely each need to raise an extra 10 billion Swiss francs in capital to meet new rules.</s>The Brexit vote has pushed shares in Deutsche Bank ( ) and Credit Suisse ( ) to record lows and triggered a string of analyst downgrades, highlighting expectations that Europe's already-struggling investment banks will be pushed further to the sidelines by their U.S. counterparts.

"In our view, the uncertainty created post Brexit, if it leads to long-term negative impact on profitability, could result in further restructuring in Tier Two investment banks," JPMorgan analysts wrote in a note on July 11, downgrading their estimates for European banks in favour of their U.S. rivals.

Brexit is seen as a negative for banks on both sides of the Atlantic because the uncertainty could subdue dealmaking and trading activity. And banks may also face the cost of relocating some London-based businesses and staff to other EU cities.

But European banks will find it tougher as Brexit comes on top of post-financial crisis structural overhauls that their U.S. counterparts have largely completed.

Since Britain's vote to leave the European Union, some headhunters on Wall Street have reported getting more calls from investment bankers at European groups asking about jobs at their U.S rivals.

"People I've been in discussion with since the middle of last year have all of a sudden started saying 'you were right ... I should be more open-minded ... I don't want to be the last guy here to turn the lights off. Is it too late in the year to move?' Gary Goldstein, founder and CEO of executive search firm Whitney Partners in New York, said.

Europe's banks were already on the back foot before the vote, focused on cost-cutting and shoring up capital while more strongly-capitalised U.S banks have been able to go out to win new business.

"We have been getting a number of calls from senior bankers at the European institutions in the U.S.," Kevin P. Mahoney at Bay Street Advisors, LLC, said.

"The concerns range from the European banks' inability to lend, and thus compete on deals going forward, to the quickly eroding value of their stock awards and overall compensation."

Some senior executives, worried about the risks of Wall Street dominating the region, argue that Europe needs its own investment banks to service companies at home and abroad and help to spur economic growth.

"It is in the interests of Europe at large to have a strong, globally relevant bank in Europe," Alasdair Warren, head of corporate and investment banking EMEA at Deutsche Bank told Reuters.

"If the only globally relevant banks of scale are North American, it's not politically or socially good for Europe. But of course, all institutions, irrespective of geography need to be globally competitive."

Barclays' ( ) chief executive Jes Staley said earlier this year that the region risked tipping over into American dominance, which could leave Europe’s capital markets entirely dependent on firms based elsewhere.

European companies could also play a role in supporting their home banks. In a research paper in March, think-tank Bruegel said companies could help to bolster the continent's investment banks.

"We recommend that the big European corporates should cherish the (few) remaining European investment banks, by giving them at least one place in otherwise U.S.- dominated banking syndicates," the paper said.

"That could help to avoid complete dependence on U.S. investment banks."

In 2007, the eight biggest European banks' FICC (fixed income, currencies and commodities) revenue was $48 billion, compared with the $38 billion generated by the five biggest U.S. banks, according to data from analytics firm Tricumen.

Last year, European banks' revenue was $26 billion while U.S. banks was $43 billion. In eight years, there has been a $22 billion fall in FICC revenue at European banks and a $5 billion increase at U.S. banks. Europe's 26 percent advantage has turned into a 40 percent deficit.

European banks' total fee revenue from bond issuance, equity capital markets and mergers and acquisitions (M&A) fell from $17 billion to $13 billion between 2007 and 2015, while U.S. banks' fees remained unchanged at $23 billion.

"I would expect European banks to lose more market share to the U.S. banks," Darko Kapor a partner at Tricumen, said.

The five largest U.S. banks employ around 40,000 people in London, more than in the rest of Europe combined, taking advantage of the EU "passporting" regime that allows them to offer services across the bloc.

If they have to set up new continental European outposts this could be extremely costly.

It could cost 50,000 pounds ($66,215) per person, on average to relocate an employee to the EU, according to consultancy Crossbridge, taking into account the costs of hiring and redundancy, new building, rent and other infrastructure and contingency costs.

U.S. investment banks have 20 percent more EMEA (Europe, Middle East and Africa) staff in Britain than their European counterparts, according to industry analytics firm Coalition.

"Most banks (U.S. and European) have put in place a hiring freeze and are following a "wait and watch" approach. Some banks that had launched restructuring before Brexit are looking at accelerating those programs," Coalition said.</s>MOSCOW (Sputnik) — In case of "Hard Brexit," an economic cold war might break out between the United Kingdom and the European Union nations as the competition for the positions on the international financial market could be escalated, Italy’s Deputy Foreign Minister Mario Giro said in an interview with The Guardian newspaper on Monday.

"We are hearing more and more that there are people – economic interests – who are thinking they can inherit some economic position, thinking that they can take away from the UK some of the position of the City of London. … And this will be an economic war. Let’s say an economic cold war, and we [Italy] are not in favour of it," Giro said.

On January 17, while failing to negotiate a free trade agreement with the EU authorities, UK Prime Minister Theresa May explained her "hard" negotiating stance for Brexit, which included withdrawing from the EU's single market and forbidding the free movement of people.</s>Germany's financial regulator is hosting more than 20 banks to set out guidelines for setting up shop in Frankfurt following Brexit.

Bafin has brought together 50 representatives from those lenders for a full-day workshop addressing growing interest in shifting operations to the city following Britain's divorce from the EU.

The invite-only event - held at Bafin's Frankfurt office - is understood to have drawn major US banks including Goldman Sachs.

It has recently played down reports that it could cut London staff by half to around 3,000 and organise transfers to New York and to a new subsidiary in Frankfurt.

Citigroup and Morgan Stanley were also set to attend, according to reports.

Citigroup, which employs around 9,000 UK staff, is looking to shift its broker-dealer business to the EU, but will make a decision over the coming months.

All three banks declined to comment.

Representatives from the European Central Bank and Bundesbank were also reportedly at the event. Neither confirmed their attendance.

Global lenders, including JP Morgan and HSBC, have said that parts of their businesses would be moved from the City in response to Brexit and Prime Minister Theresa May's decision to rule out single market membership.

It means UK-based banks are likely to lose passporting rights - which allow financial services to trade freely within the EU's single market - and raises the possibility that London will lose out to rival EU financial centres such as Dublin, Amsterdam, Paris and Frankfurt.

HSBC has said it is on course to move 1,000 jobs from its London office to France, while around 4,000 of JP Morgan's 16,000 UK staff could be shifted abroad.

Barclays is eyeing a number of EU cities as part of Brexit contingency plans, and could end up bulking up its Dublin offices as a result.

However, it is not clear whether London jobs would be moved, or if new staff would be hired.

The British Prime Minister said she held "positive" talks with bank bosses and business chiefs after a trip to the World Economic Forum in Davos, Switzerland, earlier this month, insisting that her vision of a "global Britain" would keep posts in the UK.

However, Goldman Sachs chief executive Lloyd Blankfein reportedly "talked tough" in his meeting with Mrs May and said there was no reason why European financial centres would not emerge as "effective rivals" to London, according to the Financial Times, citing sources.

Earlier this month, Mr Blankfein said New York is already gaining from Brexit as the US bank pulls back on previous plans to shift operations to Britain.
Consultancy PwC says that global banks with business both in London and on the European continent must plan for a hard Brexit that entails a break with many of the benefits of the Euro system, and a short transition period.