Brexit delivers longer blow to bank sentiment than global crisis - survey

By Emma Rumney

LONDON (Reuters) - The prospect of quitting the EU has hurt sentiment in Britain's finance industry for longer than the global financial crisis that plunged economies into recession and destroyed some of the world's biggest banks, a survey found on Monday.

The quarterly poll of 81 finance firms by business lobby CBI and accountancy PwC found optimism dropped to levels not seen since the 2007-9 crisis and that the declines have been more sustained.

This was despite firms reporting growing business volumes and increased employment in the quarter to March, and that they planned to grow headcount further in the next three months.

"Financial services firms have performed well over the last three months, with business volumes and employment on the up and beating expectations," said Rain Newton-Smith, CBI chief economist.

"But there is no escaping the rather large elephant in the room," he added, referring to Brexit.

While a transition period agreed between London and the European Union had bought firms more time, the government still has to protect the sector's world-leading status when Britain exists the bloc, Newton-Smith said.

London's access to EU markets when the transition period ends in 2020 is still uncertain and EU officials have rejected calls for a deal that maintains the terms finance firms enjoy today.

The survey's measure of optimism among the firms was -17 percent in January-March, up from -22 percent in the three months to December 2017 which was the lowest since the -34 percent seen in March 2009. The index fell to -59 at its worst during the financial crisis.

The number is calculated by measuring the difference in percentage points between firms that reported increased optimism and those that reported it decreased.

It was the eighth quarter of falling optimism in the last nine quarters and marked two straight years of negative sentiment - longer than what was seen over 2007-9, when gloom in the industry lasted for seven consecutive quarters.

PwC's head of financial services Andrew Kail said as well as Brexit, firms were grappling with high levels of competition, changing consumer behaviours, rapid technological change, new regulation, and trying to manage costs.

"... Collectively, it is denting confidence about the future," he said.

(Reporting by Emma Rumney; Editing by Robin Pomeroy)