Law firm Baker & McKenzie said that the global economy will stand to lose up to $1.6 trillion and the U.K. up to $338 billion in lost merger-and-acquisition activity by 2020 by the Brexit vote.

“An active M&A market is all about confidence and credibility,” Michael DeFranco, global chair of M&A at Baker & McKenzie, said in a report.

“To restore that confidence the U.K. government will need to get to grips with the enormous challenge of negotiating a new trading relationship with the EU as quickly as practically possible. Otherwise we move into more dangerous territory,” he added.

An adverse scenario where Brexit incites growing populism in mainland Europe and undermines EU support among remaining members formed the basis of the forecasts made by the law firm.

$239 billion off U.K. M&A activity by 2020 and $409 billion off global volumes would be still knocked off by Brexit according to the Baker & McKenzie’s central forecast. U.K. M&A transactions are seen falling by 33 percent in 2017 alone, U.K. M&A transactions are seen falling by 33 percent.

“In the last few days we have seen evidence that the M&A market in the U.K. won’t come to a crashing halt even if it won’t be at its previous pace,” Tim Gee, London M&A partner at Baker & McKenzie, said.

“There are still plenty of buyers and sellers for the right deal at the right price. There are already some clear upsides — global organizations looking to acquire U.K. companies will find that a weaker pound makes U.K. valuations more attractive, although the uncertainty surrounding trade negotiations could deter the more risk averse,” he added.

Baker & McKenzie said stock market listings (IPOs) would be hit by the Brexit vote.

“The picture for IPOs is equally depressed, as these flows tend to be even more sensitive to confidence effects than M&A transactions, so the U.K. market is likely to remain relatively quiet over at least the next couple of years,” it warned.

On the other hand, according to consulting firm Synechron Inc, 50,000 pounds ($65,660) per employee would be the cost for banks wanting to move their U.K. staff abroad after Britain decided to leave the European Union.

The cost of setting up new offices in cities that could include Amsterdam, Dublin, Paris or Frankfurt, hiring and firing other employees and relocating staff were included in the Synechron’s analysis published Monday.

To maintain unfettered access to the EU’s single market, banks would have to relocate employees to the continent, executives at Citigroup Inc., Goldman Sachs Group Inc. and HSBC Holdings Plc have all said. JPMorgan Chase & Co could end up spending as much as 200 million pounds for relocating as many as 4,000 staff out of Britain if the predictions of U.S. bank’s Jamie Dimon are followed through.

The issue of passporting is central to their concern. Access to a $19 trillion integrated economy with more than 500 million citizens is possible for any bank that has been incorporated in any member state and can sell its products and services in all 27 others under EU law. While keeping the overwhelming bulk of staff in London, even the largest banks are allowed to get by with only satellite offices in capital cities like Paris and Madrid, and none at all in many other EU countries by the regime.

“Financial passporting is vital to the work many banks undertake across Europe and they will have to think carefully about which city within the EU their interests and their clients’ interests will be best served,” said Tim Cuddeford, a London-based member of Synechron’s business consulting group.

(Adapted from CNBC & sBloomberg)

Categories: Economy & Finance