Brexit Fallout Continues For Finserv, Corporate Treasurers

It’s been a weekend since the U.K. shocked the global markets by voting to leave the European Union and move forward with its so-called Brexit, but the economic analysis of that decision continues to pour in.

Monday (June 27) reports from an array of media outlets are highlighting how Brexit might impact the financial services sector, and what that means for corporate finances.

The Wall Street Journal, for one, pointed to the potential disruption of the FinTech startup scene in the U.K. and Europe, both major global hubs for the industry.

Licenses in the EU enable digital transfers across borders for FinTech startups, but Brexit may pose a problem to that cross-border development. Companies may need to move their headquarters, while cross-border employees of these firms may also need to relocate.

“A lot of FinTech peers are thinking about moving to Germany, removing the uncertainty of being based in London,” said Erik Engellau-Nilsson, the global head of communications at Stockholm-based FinTech company Klarna, in an interview with the publication.

But traditional banks are also facing uncertain futures following the U.K.’s vote. The Financial Times reported over the weekend that U.K. challenger banks, the financial institutions that are smaller but established to promote competition among the large banks in the country, are concerned about economic uncertainty and their exposure to these risks.

Reports said investors are raising alarms over an economic slowdown and its impact on these challenger banks.

“Relative to large banks, challengers are less liquid and are domestic-facing. The weakness is principally due to the economic uncertainty,” said Liontrust Asset Management fund manager Jamie Clark in response to the Brexit vote. He added that challenger banks are likely to see an increase in loan delinquencies, while those FIs targeting SMEs are also facing challenges due to a “tougher environment” for small businesses post-Brexit, according to Citigroup’s Andrew Coombs and Ian Sealey.

While smaller businesses may face financial struggles in the wake of the vote, analysis from treasury management firm Reval released over the weekend found that larger corporations are similarly facing new hurdles.

The businesses that prepared for Brexit with scenario planning are likely better off than their counterparts that didn’t.

“Companies that had done contingency planning and scenario analysis were in a much better situation waking up this morning,” said Reval Solutions Consultant Jacqui Drew on Friday (June 24), the day the Brexit vote was decided. “We were recently in discussions with one company that entered into binary FX options to hedge specifically against Brexit and another company that performed advanced cash flow at risk to plan for Black Swan events.”