Brexit As A Bank Boon

The Brexit vote may be well in the rearview mirror, but the effects linger, in the form of interest rates, political reverberations and, last but not least, stock market volatility. The overall sentiment has been that this is one seismic event that has been less than savory for financial institutions in the U.K. and across the pond.

But one group stands out as a beneficiary: banks. As The Wall Street Journal noted on Monday, financial institutions as a sector enjoyed the surge of volatility and trading that typically act as twin engines of panic and trading (which often go hand in hand) and trading of course leads to more revenues for banks.

In fact, that additional revenue garnered was enough to help boost second quarter results and top expectations – rather impressive considering the fact that the Brexit vote was scarcely a week before the end of the quarter. The short-term advantage of the increased trading activity may mask some longer and knotty problems of, say, infinitesimal interest rates, or having to move employees to new financial capitals or dealing with new regulatory headaches in the wake of the impending separation from the E.U. (though it is two years off).

In any event, the data released last week by the Securities Industry and Financial Markets Association show that the average U.S. firm trading in bonds for the month of July, as measured in volume, was up 1 percent from the year before, and up 6 percent in June, and reverses a trend where such trading was all but somnolent in 2016 leading to those two months – in fact at 1 percent levels of growth, again, measured by volume.

If you’ve heard the phrase “reversion to the mean” then you know that what goes up must come down, at least a little. That means that such trading spikes will settle down, but for now banks are happy to harvest that low-hanging fruit.