With the UK referendum going against staying as a member of the European Union that banks which headquarter themselves in London are going to face not months but years of uncertainties. Below described are the main areas where uncertainties are stemming from,
- A vast majority of the global banks and the banks operating in the European Union, headquarter themselves in London and can have access to all the other 27 European Union members. Now, if the referendum finally leads to a Brexit, the banks may have to apply for new EU banking licenses.
- As France and some other members have threatened of the possibility that Euro clearing will be removed from London to other cities in the European Union, banks would be subjected to a greater cost of regulations and uncertainties.
- While the referendum has triggered large volumes in trading which may boost revenue, some banks may be sitting on paper losses over their inventory holdings. In addition to that, the recent spark in volumes may dry down in the longer run as investors wait out till the uncertainty clears.
- Banks earn a major portion of its income from bond subscriptions, IPO listings, and from the mergers and acquisitions fees and all of which could go down as a result of the uncertainties stemming from the referendum.
- Banks are more likely to lose out in terms of reserves’ return as central banks will either go for further rate cuts or hold rates low for longer.
- Due to the large drop in sterling, converted revenues from the UK banks whose parents are overseas likely to be much lower.
- Funding cost for the UK banks is likely to rise compared to their American counterparts.
With such uncertainties lurking, it’s hardly a wonder that bank shares are down 20-40 percent since the referendum, given London’s status as the largest global financial hub.
The material has been provided by InstaForex Company – www.instaforex.com