Capital yet to feel full force of banks' collapse

• The Bank of Scotland building on the Mound, Edinburgh Picture: Phil Wilkinson / TSPL

The loss of scores of high earners will have a knock-on effect on the housing market and professions such as law, accounting and insurance, and will ultimately hit every part of the Scottish economy, it is predicted.

Halifax Bank of Scotland (HBOS), which was taken over by Lloyds Banking Group in 2009, and Royal Bank of Scotland (RBS) are still recovering from their near-collapse. There are fears this has seriously damaged Edinburgh as a financial centre, making the banks increasingly turn to London.

Insiders say senior executive "decision makers" who spilt their time between the two cities are spending longer down south and, as a result, are using lawyers and accountants there, rather than firms in Edinburgh.

There are also fears for the housing market, with an estimated two in three Edinburgh homes worth 1 million or more - the part of the market that has driven the recent rise in prices - owned by senior employees of the major banks.

Alastair Dickson, senior partner at Dickson Minto and Scotland's most successful corporate lawyer, fears for the future of the Scottish capital, and highlighted Lloyds' takeover of HBOS as a cause for concern.

He told The Scotsman: "We have still got to feel the effects of HBOS's move south. In the long term, I am worried about the future of Edinburgh as a city.

"I don't want to knock it down, but I do think people underestimate how much the city has benefited from the growth of HBOS, RBS and Standard Life.

"With the demise of HBOS leading to it moving south, and the future of RBS uncertain, that will have a huge impact. Two out of three houses worth more than 1m (in Edinburgh] are bought by their employees, and if you undermine the top of the market, that will permeate all the way down. The impact will be gradual but, as decision-makers move south, then so do a lot of jobs that go along with them."

His company has offices in Edinburgh and London, but increasingly his money is made south of the Border.

Jeremy Peat, former group chief economist at RBS, believes Scottish legal firms will be among the first to feel the effects of the loss of senior banking executives.

He said: "Having the two big banks of HBOS and RBS in Scotland is important for a variety of reasons, such as the housing market and the employees' demand for high quality services.

"If you've got decision-makers in Edinburgh, they are likely to look for top quality legal, accountancy and other services. If they are based in Edinburgh, they will want that advice to come from Edinburgh. If they are based down south, they are more likely to seek that advice in London."

Earlier this month Lloyds unveiled a larger than expected profit of 1.6 billion, but chief executive Eric Daniels warned more Scottish jobs could still go.

He said the organisation was only halfway through the "integration" of Lloyds TSB and HBOS - a process that has so far seen the loss of 16,000 posts, with 1,000 of those in Scotland. RBS has also said more jobs are likely to go, with 23,100 lost so far worldwide, including 17,100 in the UK and up to 1,300 in Scotland. Standard Life has been praised for performing well during the recession, but still cut 190 jobs, including 47 in Scotland, last year.

The banks insist their commitment to Scotland is as strong as ever, but Sir George Mathewson, who masterminded the growth of RBS into a global force and has advised the Scottish Government on economic policy, believes the drift south has already begun.

He said: "HBOS's main centre of activity has moved to London, and some people have gone too - some from RBS as well.

"It would be strange if, after the events and restructuring that has gone on, there was not a loss of people. I would expect that to happen, but it would be nice to think that there's some efforts to minimise it."

He added: "Edinburgh's done very well in recent years but it's certainly a risk at the moment that decision-making will be taken away from here. We just have to hope that it has as little effect as possible.

"It's something that may take a wee while to happen. At the moment, a lot of (senior executives] are moving up and down, commuting."

Economist Professor David Bell said: "Almost through an accident of history, Scotland has been particularly well represented in the financial sector. That history does not count for much any more. When you get an economy that is not expanding very fast, like in Scotland, large multinationals will look where growth is most likely - that does not work in Edinburgh's favour."

"I do think Scottish insurance companies are now largely branches, apart from Standard Life."

He said the talent drain from Scotland, and the UK as a whole, was already taking place in many professions allied to banking.

He warned the impact of such changes will be felt beyond the legal corridors and banking boardrooms, and will affect the whole of Scotland.

Prof Bell said: "If there's a reduction in top-end jobs, then that filters through to the top end of the housing market and works its way down from there. It will be felt by high-end retailers and other services for the relatively well off. Eventually, that will mean less jobs and less demand in the Scottish economy."

The Scottish Chamber of Commerce played down fears of a "mass exodus". A spokesman said: "There is concern in Edinburgh that big players do now tend to be based in the south of England. Therefore it behoves the city of Edinburgh to attract these people here. They are not just going to come, we have to attract them.

"Is there going to be a mass exodus? I don't think so. Are there likely to be some going? Yes."

Peter Lyell, head of Edinburgh residential at Savills, said: "There is no evidence of a mass exodus of high earning bankers asking us to put their Scottish homes on the market. While there may be a few high earners moving south, there is a growing number of new buyers to take up the slack, including those from the south and overseas."

Lloyds Banking Group said Scotland remained "very important" to the company.

"We employ around 20,000 people in Scotland, including a substantial amount in Edinburgh which is also home to some of our biggest brands - Bank of Scotland, Scottish Widows and SWIP," a spokeswoman said, adding that some 20 per cent of its most senior executives were based in Scotland.

Standard Life said its corporate headquarters and executive team were based in Edinburgh "and we currently have no plans to change this".

A Scottish Government spokesman said: "Scotland retains significant headquarter functions, notably in banking where RBS has given a commitment that Gogarburn will remain its headquarters.

"Scottish Development International has also been successful in attracting headquarter functions from new entrants into the banking market, most notably Virgin Money and Tesco Bank."

Charlotte Square continues to hum . . . and estate agent Strutt & Parker has sold 86 million of property. Talk of "the death of Edinburgh" should be kept in perspective.