31 January 2019

Bloomberg: The Brexit bill: Here’s the damage so far

Britain’s vote to leave the European Union has already come at a cost regardless of where Brexit goes from here. Some of the damage is tangible, such as jobs, investment and capital; some of it less so, like international clout and talent.

Finance

The City of London has seen a steady outpouring of money and jobs as the world’s biggest financial companies reorient their European footprints to protect business.

Five of the largest banks looking to serve the continent are transferring 750 billion euros ($857 billion) of balance-sheet assets to Frankfurt, according to people familiar with the matter. They’ve had to move capital to get EU approval to continue providing services across the bloc.

Exchanges handling daily transactions have also upped sticks or at least reproduced their London services on the continent. CME Group Inc. has moved its $228 billion-a-day European market for short-term financing, the largest in the region, to Amsterdam.

While fewer bankers have left London than first estimated, moves are being made. The world’s biggest banks have outlined plans to transfer several thousand staff to cities such as Paris, Dublin and Madrid. Those personnel shifts are likely to be irreversible, according to TheCityUK, a lobby group.

The Economy

The pound has declined more than 10 percent against the euro since Britain voted to leave the EU in June 2016. Exporters may have benefited, but the increasing cost of imported goods and services boosted inflation. The effect is a drop in purchasing power for consumers, making life even more difficult for the nation’s beleaguered retailers.

Businesses have also been deferring spending decisions as they ride out the uncertainty over what form Brexit will take. The Bank of England had forecast zero growth in investment for 2018. Officials have also warned it may not be possible to regain all the lost ground, with central bank policy maker Michael Saunders saying some of it might be a “permanent loss.”

Growth has also taken a hit. A UBS study in September 2017 suggested the referendum had already cost Britain more than 2 percent of economic output. The damage could be long-lasting, with the economy not predicted to return to its pre-referendum pace of growth until beyond 2020, according to forecasts compiled by Bloomberg. [...]

Credit

Uncertainty about the pound and the economy have exacerbated a decline in sterling’s role in global credit markets. Overseas non-financial companies only sold 7 billion pounds ($9.2 billion) of notes last year, less than half the amount issued in 2017, according to data compiled by Bloomberg.

Sales of pound-denominated corporate bonds also had their longest drought in nearly two decades at the end of 2018, as borrowers shied away from a market rattled by Brexit uncertainty. The cost of insuring the subordinated bonds of major British banks has also been rising in recent months. [...]

Full article on Bloomberg

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