Wall Street’s biggest investment banks will not waste time in reviewing their European businesses as capital markets issuance and M&A activity slow after the UK’s vote to leave the EU, according to analysts at credit rating agency Fitch.
Fitch, which on June 27 downgraded the UK’s sovereign credit rating from AA+ to AA, said in a statement that the June 23 referendum vote to leave the EU would be “disruptive” and “costly” for US banks with big UK businesses.
Those banks are likely to start implementing contingency plans now, said the note, written by Joo-Yung Lee, Fitch’s managing director for North American financial institutions, “rather than wait for trade and service arrangements to be agreed”.
Lee said that banks’ plans “will depend on licence status in various jurisdictions, as well as establishing operational scale, potentially reallocating capital and relocating where trades and clients are booked”, and that “relocation of staff is likely to follow”.
She added: “Management will have to decide where to focus its European operations, depending on language requirements, staff expertise and incentives offered by these countries. Flexible labour laws will be important for US firms, so this may favour countries like Ireland and the Netherlands, rather than Germany and France.”
Lee said that restructuring costs around relocation will hit banks’ earnings and that operating profitability is “likely to remain under pressure”. She also said that lessened corporate issuance and M&A during the UK’s two-year exit period would further pressure on banks’ profits.
US bank bosses have so far spoken only in broad terms about the possibility of moving roles from the UK to other European financial hubs.
JP Morgan chief executive and chairman Jamie Dimon said in the run-up to the referendum that the US bank might have to move as many as 4,000 jobs from the UK in the event of a Brexit. In a memo to staff the day the result was announced, he said that “the location of some roles” may need to move “in the months ahead”.
Morgan Stanley, whose president Colm Kelleher told Bloomberg before the referendum that a UK vote to leave the EU might lead the bank to move its European headquarters from London to Frankfurt or Dublin, denied media reports on June 24 that 2,000 jobs were already being moved. The bank said: “There will be at least a period of two years before an actual exit takes place, so there will be time to implement any changes required to adjust our business to the new environment.”