Republic battens down the hatches for a hard Brexit

Following a meeting of the leaders of the 27 remaining EU states last weekend to decide on the negotiating mandate for the union going into talks with the UK, the pieces on the Brexit board are beginning to move.

The European Commission’s chief negotiator, Michel Barnier, warned against the “illusion” that the process of Britain’s exit will be quick or painless, with the process expected to begin once a new British government is in situ at Westminster.

Britain’s Brexit secretary David Davis rejected suggestions the UK will foot a €100 billion bill for leaving the bloc, saying Brussels will only receive what it is legally owed. Davis said the European Commission could not set a “divorce deal” figure.

Meanwhile, the Republic is continuing to batten down the hatches and try to prepare against a background of uncertainty. An official strategy document this week said the Government will argue for special EU support to cope with the economic shock from Brexit.

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Ireland will also argue strongly for proper arrangements for a transitional period after Britain leaves but before a new trade deal between Britain and Europe is finalised.

The document also said Ireland would argue for the closest possible trading relationship between the EU and the UK in future and recognition in the talks of the key trade issues the Republic faces.

Indeed, Investec’s chief economist in the UK, Philip Shaw, described the British government’s two-year timeline for negotiations as “unachievable”.

“What we’re saying to clients is, don’t panic, we know that Westminster and Brussels realise you cannot settle this within 18 months or two years,” he said. “So what we’re aiming for is perhaps a more generalised set of principles to be agreed and ratified with the detail sorted out later.”

The effects will be much worse if no free trade agreement can be reached

There is also consensus among Irish senior executives on that. Almost all of them believe a hard Brexit is inevitable, with less than a quarter considering that a deal is possible in two years.

That’s according to an executive expectations report from Merc Partners, which also found that less than half believe the prospects for the Irish economy are better now compared to 12 months ago.

If they’re right, and it is to be a hard Brexit, the Republic could lose 40,000 jobs after 10 years, according to the chief economist of the Central Bank.

“Our estimates suggest that after 10 years, GDP would be lower by 3 per cent,” Gabriel Fagan told the Seanad special select committee on the withdrawal of the United Kingdom from the EU.

“The effects will be much worse if no free trade agreement can be reached,” he said. “Some small to medium enterprises are likely to be among the hardest hit by Brexit,” Mr Fagan added.

Big fees for ‘big four’

Despite all that, one person’s trouble is another’s opportunity. Fee income at Ireland’s “big four” largest professional services firms rose substantially in 2016 amid the growing uncertainty.

PwC, which reports on an all-island basis, saw fee income rise almost 9 per cent to €407 million in 2016, figures provided to the Irish Times business database Top1000.ie show. According to its transparency report, PwC's fee income in the Republic rose 10 per cent to €270 million.

KPMG Ireland, which also operates on a 32-county basis, had a similarly buoyant year, with fee income growth of some 7 per cent pushing the firm’s fee income up to €353 million for the year.

EY Ireland, formerly Ernst & Young, saw its revenues rise 16 per cent to €220 million in the 12 months to June 30th, 2016, or to €243 million on an all-island basis.

Deloitte has yet to report its full-year 2016 results, but figures for the year to May 2016 show growth of 6.7 per cent to €250.2 million, according to its transparency report.

Separately, Red Flag Consulting increased its profits by 43 per cent in 2016 to €456,964 following a strong year of expansion. The company is forecasting revenues of €4 million for 2017 and growth of at least 60 per cent in its profit after tax.

Dublin v Frankfurt in relocation battle

It’s not just consultancy firms reaping the benefits of Brexit. Dublin is still hoping to draw as many jobs as possible from London in the coming months and years.

It emerged this week that JP Morgan is on track to pick Frankfurt as its main European location for trading market securities post-Brexit, but Dublin is in line to secure hundreds of back- and middle-office roles, according to sources.

The choice of Frankfurt is very natural as we have a branch there and we do euro clearing there

The company’s head of corporate and investment banking, Daniel Pinto, said: “We will have to move hundreds of people in the short term to be ready for day one, when negotiations finish, and then we will look at the long-term numbers.”

Frankfurt looks set to also benefit from Standard Chartered, the Asia-focused but London-headquartered banking group.

“The choice of Frankfurt is very natural as we have a branch there and we do euro clearing there,” chairman José Viñals said.

Meanwhile, Barclays is said to have picked Dublin, which may involve the movement of 150 jobs. Credit Suisse and Bank of America Merrill Lynch are also looking at expanding their existing operations here.

Ballooning mortgage approvals – another property bubble?

Mortgage approvals are surging and house prices rocketing – but Central Bank governor Philip Lane this week insisted there is no property bubble.

Lane said the regulator’s mortgage-lending rules will ultimately act as a drag on property prices and had placed a number of “self-correcting brakes” in the system that would make it difficult for house prices to rise “persistently”.

However, Lane did acknowledge the State’s housing market remains extremely volatile and that prices were still adjusting from the boom-and-bust cycle of the past decade.

Less than 24 hours after Lane’s comments, figures released by Banking & Payments Federation Ireland showed mortgage approvals rose 62 per cent in the first quarter of 2017 compared to the same period last year.

Furthermore, the value of the loans approved is rising even faster – by 77.5 per cent year on year. The number of loans actually drawn down to close home purchases in the same period was just 27.4 per cent up year on year.

Separately, high-profile debtor advocate David Hall is said to be planning a scheme that would involve purchasing the houses of people who are deep in arrears with their mortgages while allowing the owners to stay in their homes.

I Care Housing, a not-for-profit approved housing body, is believed to be in advanced discussions with a number of banks about acquiring loans that are in arrears.

Exchequer returns leave a big hole

There was more worrying news for the Government as exchequer returns showed a €344 million hole in the public finances.

The receipts from three of the big four taxes – income tax, corporation tax and excise duties – did not match expectations. Only VAT receipts reached the level projected by the Government.

The Department of Finance has said it is “not at the point where we are worried” but there is already talk of expected increases in public spending coming under pressure.