People walk past a branch of the Royal Bank of Scotland (RBS) in central London. RBS said last month it was inevitable that it would close more of its 1,900 branches after branch transactions fell by 30% over the past 3 years. Barclays, Lloyds and HSBC are also expected to close branches, according to industry sources - AFP Photo.
LONDON: European lenders plunged on Friday, with some of the largest banks including Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc among the biggest losers, as the UK vote to exit the European Union sparked turmoil across financial markets.
The Bloomberg Europe Banks and Financial Services Index dropped 6.7% at 8.06 am in London, with Royal Bank of Scotland Group Plc fell 34% to 206 pence. Lloyds Banking Group shares fell 29% to 51.34 pence while Deutsche Bank dropped as much as 18%, while Credit Suisse lost 14%.
Financial markets convulsed as investors dumped the pound and equities and piled into safe-haven assets including gold and German bunds. Senior bankers from JPMorgan Chase & Co.’s Jamie Dimon to HSBC’s Stuart Gulliver had warned that a Brexit could cause them to move thousands of jobs from the UK with Deutsche Bank CEO John Cryan saying in a statement on Friday that the decision will be “negative on all sides.”
Brexit “is sure to be very disruptive in the short term and a drag on economic growth and employment in the longer term -- especially for the UK,” said Tim Adams, the head of the Institute of International Finance, a global association of the financial industry, counting about 500 members from about 70 countries.
Analysts led by Andrew Coombs at Citigroup Inc downgraded Lloyds Banking Group Plc and Barclays to sell after the Brexit vote. They already have that same recommendation on the shares of RBS.
While HSBC and Standard Chartered are “not immune” to the outcome, they should perform better than their UK rivals, according to the note.
“It’s an obvious shock to the system,” said Jesper Koll, CEO of Wisdomtree Japan.
“You’ve got this adjustment to the new reality in the exchange market and in the equity market - but the real question is whether the macro adjustment forces a banking crisis. Will Europe have a Lehman-type shock with one of the European continental banks being forced into insolvency.”
It was only four months ago that HSBC said it will maintain its headquarters in London, a move that helped underscore the city’s status as a global financial hub.
The decision, after 10 months of deliberations, came after concessions from the UK government on regulation and taxes. The bank would probably move about 1,000 investment bankers to Paris in the event of an exit, CEO Stuart Gulliver said in February.
Others have also signaled that they’re ready to relocate jobs abroad. Morgan Stanley indicated it could shift its local headquarters to Dublin or Frankfurt after a Brexit. Citigroup would “rebalance” its European operations, a company memo showed.
While Deutsche Bank, which has more than 8,000 people in UK, is “well prepared” for the outcome, Cryan said he’s disappointed with the outcome.
“I’m afraid this isn’t a good day for Europe,” he said in the statement.
“At this stage, we cannot fully foresee the consequences, but there’s no doubt that they will be negative on all sides. There’s no doubt that the uncertainty created by the referendum’s results will be a challenge.”- Bloomberg
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