Brexit and the speculated effect on the UK Financial Markets
Saturday, 29 July, 2017
In the aftermath of Brexit, the British Public who voted to leave the EU are still unclear. Bank shares have taken a significant hit with RBS down 15%, Barclays 10%, and Lloyds 8%, leading the London Stock Exchange to halt trading in those stocks. Numerous speculations about the forthcoming are in the air. People are concerned about UK financial sector, corporate banking, investment banking, and retail banking operations.
Speculation No. 1: Dropping in Rate hits Bank Profits
UK banks are likely to sell off short to medium term shares, due too. In comparison to 2008, the UK banks are generally better capitalized now and helping Liquidity to remain strong. Since the last decade, UK banks have seen a huge growth on a global platform. May this be the reason that the banks in the UK still agonising the aftershocks of Brexit. However, dropping in rates certainly decreased the profit margin for the UK banks.
Speculation No. 2: Bad Loans and Tight Liquidity
Traditional Banking will be hit as the UK Economy loses its strength in the coming time. The Higher unemployment rate, poor wages and additional bad loans are a risk. The impact on the real economy outside of the banking sector is yet to see. In the coming quarter, the impact on small businesses and corporates may well be reasonably significant. The market may have been in need of an adjustment, after almost a decade of low-interest rates, most of the UK corporate and Retail banks have remained strong, whilst the investment banking division has seen some suffering. UK investors and banks will be looking at their loan guides more cautiously, with some of the RWAs not looking attractive anymore.
Speculation No. 3: Fintech Leaves London
London loses its position as the Global Fintech Hub after Brexit. There is a concentration of talent based in London that is a blend of tech and former banking expertise. They chose London for further reasons than it being a good place at a point in time. While the unpredictability brews about new legislation, a good amount of employment slash at banks will mean more talent flooding the Global Fintech Market.
For those in Fintech, Brexit has seen as a universally horrible event, now the task is to shore up the dam and avoiding it breaking. The opportunity for Fintech in moments of gravity is often disregarded, but a volcano always lays futile earth.
There’s a real opportunity to support banks by identifying the ways to shore up loan pads. It is also crucial to Identify new profit centres for banks that can be provided sooner. Rentech that can arbitrage old and new regulations between UK / Europe. Those in the Fintech community can start the fight back in spite of rocky time for UK banks ahead. All we need is a good Brexit.