In the face of post-Brexit discussions, global banks deal with various market concerns. It was clear enough, Brexit changes the direction of the stocks, the commodities and the financial market. And currently, the impact and relevance of London’s leave to vote to the foreign banks turn out to be one of the major concerns of the market players.
As the United Kingdom chose to go out of the European Union, the shares of the global banks outside Britain tumbled. Although the other market sectors have found a slight recovery, these foreign banks still could find a breather at the moment. These global bank giants are now facing market uncertainties.
Similar to the issue of the tourists and migrants across the region of Europe, the foreign banks which are based in Britain and other European countries call for a clarification on their license to operate. There could be a potential relocation and contingency plans if necessary. The indecision regarding the transfer of euro from London to Frankfurt or Paris was on their table as well.
Based on the released reports, U.K. has a plan to lessen the number of bank staff that works in London and wants to move some operations to cheaper locations. In line with this, a New York based analyst said that in the longer term, US, banks could benefit given (the) high costs in London. However, he also warned that there could be a cut of savings since some functions would just end up being duplicated in the U.K. and in the rest of Europe.
In terms of the trading revenue, these overseas banks have experienced a significant trading volume after the conclusion of the vote. There were over 10 times than the normal trading levels right after the decision to leave was reported. According to the market experts, the boost from client trading income was not a good news because it might be offset by inventory losses for banks are expected to hold assets with lower value.
Investment banks which hold huge markets businesses may suffer if trading revenues would drop. An analyst forecasted that the heightened economic, political and market uncertainty, together with the associated market volatility, is likely to greatly reduce the number of deals and transactions. Thus, the investment banking revenue could potentially decline as deal making stifles together with other corporate activities.
Meanwhile, European banks have been experiencing a serious problem as their respective share price had plummeted around 20 percent already. The fear of allowing the banks to plunge as long as the situation persists linger among the financial institutions. European regulators must find the appropriate banking system to save these affected banks from setting back to the downside.
Futher, Italian banks made it through the market scene as 17 percent of bank loans in Italy went sour. Almost half of the bad loans on the publicly traded banks in Europe falls under the Italian banks. These lenders were struck by low and negative interest rates and slower economic growth and Italy was hit like a thunder in particular.
Lorenzo Codogno, former director general at the Italian Treasury, said that Brexit could lead to a full-blown banking crisis in Italy and the risk of a eurozone meltdown is clearly there if Brexit concerns are not immediately addressed.
In these coming months, the strength of the U.S banks will be tested against the stability of the European banks. The lower rates could stay longer and there could be lesser profit for the U.K. subsidiaries and branches. Which of them will surpass the Brexit impacts and which will take advantage of the epic market share opportunity?