By Sara Schaefer Muñoz, Jenny Strasburg and Giovanni Legorano
European banks took a beating Friday-- Barclays PLC fell as much
as 30% at one point--as lenders were slammed by widespread market
uncertainty after the U.K. voted to leave the European Union.
"Financial sectors were really expecting a 'remain,'" said
Joseph Dickerson, an equities analyst with investment bank
Jefferies International. "We are now entering a long period of
uncertainty."
British Prime Minister David Cameron said Friday morning he
would step down.
Although many banks recovered somewhat from early lows, at
midmorning in London, Barclays was down 18%. Other investment banks
had fallen by double-digit percentages as well.
Shares of Switzerland's Credit Suisse Group AG were trading down
11%, and Standard Chartered PLC was down around 6%. Shares in
Germany's biggest lender, Deutsche Bank AG, were down 14%.
HSBC Holdings PLC, which is seen as somewhat protected from the
EU exit because it has significant Asian operations, was down
roughly 4%.
Spain's Banco Santander SA, which has significant exposure to
the U.K. through its Santander U.K. unit, was also pummeled. Its
share price was down 18% in early morning trading,
A number of big banks said Friday they are prepared to shift
people and operations out of London as necessary, but they need
more information before they begin major moves.
Bank executives said most trading systems held up well overnight
as voting results rolled in, even as currencies-trading volumes out
of Asia surged to around four times normal volumes, they said.
London trading desks, however, reported a sharp slowdown by
midday Friday, with liquidity for trades decreasing as investors
clung to their cash amid uncertainty. But bank executives said
there was no pressure on interbank funding, which is crucial to
keep financial markets functioning. The Bank of England and the
European Central Bank have made billions in funding available to
prevent a 2008-style credit crunch in the case of a market shock
with the exit decision.
Some financial executives sounded somber tones Friday about the
U.K. decision. Analysts did, too.
"I'm afraid that this is not such a good day for Europe,"
Deutsche Bank Chief Executive John Cryan said in a statement. "At
this stage, we cannot fully foresee the consequences, but there's
no doubt that they will be negative on all sides."
J.P. Morgan Chase & Co. CEO Jamie Dimon, with
asset-management chief Mary Erdoes and corporate and investment
bank head Daniel Pinto, told employees in a joint morning note that
the U.K. vote was a "seminal moment" that could cause the bank to
move employees and restructure parts of its business. The details
can't yet be known, they wrote, and for now client relationships
are unchanged.
The U.S. bank has 16,000 employees in the U.K., the executives
wrote: "Regardless of today's outcome, we will maintain a large
presence in London, Bournemouth and Scotland, serving local clients
as we have for more than 150 years.
Former Deutsche Bank co-CEO Anshu Jain, who since leaving the
German bank last year has been advising financial firms including
online lender Social Finance Inc., known as SoFi, said Friday the
U.K.'s exit presents "heightened levels of complexity and
uncertainty to financial institutions and markets alike." The task
of maintaining stability, confidence and unhindered trading poses
new challenges to policy makers, Mr. Jain said.
European lenders heavily dependent on investment-banking
revenues carry some of the highest post-Brexit risks for investors,
J.P. Morgan Chase & Co. banking analyst Kian Abouhossein said
in a note Friday morning. He warned that UBS Group AG, Credit
Suisse and Deutsche Bank could be among those hardest hit if
companies pull back on issuing securities and volatility continues
to rattle markets.
"We see the uncertainty created by the outcome today weighing on
capital markets activities," Mr. Abouhossein wrote.
He said that banks with concentrated exposure to the U.K. credit
markets, including Santander, Barclays, Lloyds Banking Group PLC
and Royal Bank of Scotland Group PLC, have new "material downside"
to their earnings potential stemming from the Brexit vote.
Analysts have said an EU exit could damp U.K. economic growth
and increase unemployment, and domestic banks could see personal
and mortgage loans go bad.
The situation first thing Friday morning looked even worse for
Italian banks. The majority of Italian shares failed to start
trading at market opening in Milan. Trades didn't go through
because investors were seeking to dump Italian shares at prices not
matching the ones offered by buyers.
When orders did manage to go through, Italian banking stocks
plunged. At midday, Intesa Sanpaolo SpA was down 19%, UniCredit SpA
had lost 18% and Banca Monte dei Paschi di Siena SpA was off
12%.
Shares of French banks opened Friday morning more than 20% below
their Thursday close, reflecting investor concerns that Brexit will
hobble banks more than it will other companies. Shares of Société
Générale SA were still around 18% down in late-morning trading. BNP
Paribas SA and Crédit Agricole SA were down near 15%.
Both Société Générale and BNP Paribas played down the effects
Brexit will have on their businesses, as they depend less than many
European peers on the U.K. market. Still, both banks have
significant operations in London.
Morgan Stanley multiasset investment strategists said U.K. banks
could recover from recent lows, given how much they already feel
amid pre-Brexit caution.
"While financials are likely to remain more volatile, U.K. banks
had already underperformed significantly going into the referendum.
We would therefore look for opportunities to add risk here,
selectively," Morgan Stanley credit strategist Srikanth Sankaran
said in a note Friday morning.
"We would therefore look for opportunities to add risk here,
selectively."
Write to Sara Schaefer Muñoz at Sara.Munoz@wsj.com, Jenny
Strasburg at jenny.strasburg@wsj.com and Giovanni Legorano at
giovanni.legorano@wsj.com
(END) Dow Jones Newswires
June 24, 2016 08:54 ET (12:54 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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