BlackRock chief warns Brexit will lead to 'short-term' recession in UK

Larry Fink Interview Pic

The head of the world’s largest asset manager has warned that the UK’s decision to leave the European Union will trigger a recession.

Larry Fink, chairman and chief executive of BlackRock, said UK gross domestic product (GDP) will face a “short-term” recession despite the Bank of England’s decision to keep interest rates unchanged at 0.5%.

Fink, who is one of the world’s most respected financial experts and often touted as a potential US Treasury secretary, told CNBC he expected Britain’s GDP would fall by two percentage points, to as low as minus-1%. A recession is defined as two consecutive quarters of negative growth.

“I expect a slowdown, as the Bank of England said in their policy statement, and we heard that loud and clear from the leaders of different companies last week,” he told the FT.

Fink made the comments as BlackRock, which manages nearly $5tn of assets on behalf of pension funds and other investors, reported a 3% drop in second-quarter revenues to $2.8bn as a result of economic uncertainty caused in part by the fallout from the Brexit vote.

However, the US’s biggest investment bank, JPMorgan Chase, said Brexit helped boost its profits. The bank’s chief financial officer, Marianne Lake, said the vote to leave “triggered a spike in volatility” leading to “volumes [that] were materially higher in the immediate aftermath”.

The bank said Brexit helped trading revenue surge by 23% to $5.6bn in the second quarter. Just weeks before the vote, the bank had said it expected trading income to increase in the “mid-teens”. The bank’s profits measured as earnings per share came in at $1.55, much higher than analyst’s estimates of $1.42.

Lake said she did not expect Brexit to lead to global financial panic. “At this stage we see [Brexit] as a political and economic challenge that will take time to resolve, but is not a financial crisis and the impact on global growth and the US economy is small,” she said.

Lake said talks about whether Brexit will lead to job cuts in London, where the bank employs about 16,000 people, are “only in their infancy”. She said the bank’s preference would be to keep its European headquarters in London.

Last week JPMorgan’s chief executive, Jamie Dimon, said the bank would be forced to move staff out of London if it had no longer had access to the “passporting” system that lets banks sell services freely across the EU.

“If the EU imposes new conditions on Britain … the worst-case scenario is we would have to move some thousands of employees to other branches in the euro zone,” he told Italy’s Il Sole 24 Ore.

Before the vote, Dimon told his UK staff that a leave vote would be a “terrible deal” for the UK and he may “have no choice but to reorganise our business model here. Brexit could mean fewer JPMorgan jobs in the UK and more jobs in Europe.”

Powered by Guardian.co.ukThis article was written by Rupert Neate in New York, for theguardian.com on Thursday 14th July 2016 20.03 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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