Bank shares are likely to fall sharply if there was a vote for Brexit and dividend payouts to shareholders would be axed, according to a forecast by City analysts.
The banking experts at investment management and research group Bernstein said Barclays would be hardest hit, falling 40% over 18 months. The bank has the highest exposure to London and the investment banking sector, which the Bernstein analysts said would suffer a “tank” in revenues.
Bernstein predicts rising unemployment, a slide in sterling and falling house prices in the event of a decision to leave the European Union.
The well-regarded City firm said it was publishing the research because of market movements as a result of bookmakers upgrading the likelihood of the UK leaving the EU from 25% to 40%.
Earlier this week, analysts at Jefferies concluded that Barclays’ shares had the most to gain from a remain vote – and most to lose from a leave vote. “Barclays is the most geared to the outcome of the referendum based on our analysis. We retain a buy on Barclays and note that its fundamentals are also likely to be the most directly impacted by the referendum result, given a large investment bank and broad corporate banking presence,” the Jefferies research team said.
The Bernstein analysts do not expect banks to have to embark on significant cash calls in the way they did after 2008.
Referring to the global financial crisis caused by the 2008 banking crash, the Bernstein analysts said: “The UK banks today hold the highest level of capital in their history – helped by a regulatory push post the global financial crisis to counter the very real risks that Brexit brings.”
However, the analysts said dividend payouts to shareholders would be “toast”.
Shares in HSBC, which has warned it would move jobs to France if the UK voted to leave the EU, could fall by between 15% and 20%, the Bernstein analysts said. Standard Chartered, listed in London but with its operations overseas, would not be affected.
The Bernstein research, which was published as Peter Garnry, head of equity strategy at Saxo Bank, also pointed to the possible impact on bank shares. “It is clear that no other segment of the UK equity market is more vulnerable to a Brexit than UK-domiciled banks,” he said.
“Even after considering the economic slowdown, negative interest rates and fragile financial markets, shares of UK-based banks in the FTSE 100 index are down 36% on average in the past year. Since the recent highs in mid-May, shares have gone down again as surveys on average point to strength for the leave campaign.” Garnry said Brexit would change everything for the City as the UK’s influence would be reduced.
The Bernstein analysts said that, in the short term, sterling would fall 15% to 20% and unemployment would rise. “Just to lay it out straight for a hugely contentious issue in the UK, this note is not about the longer-term implications on the decision if the UK votes out – that’s hard to arrive at today,” the Bernstein analysts said.
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