Which of the UK banks do you think would be hardest hit by a ‘leave’ vote in the EU referendum on 23 June? According to analysts, it could be Barclays (LSE: BARC), whose international operations and investment banking arm could be hit badly, especially if a Brexit leads to the much-expected fall in the value of Sterling.
Joseph Dickerson of Jefferies has suggested that Barclays’ “exposure to investment banking and corporate banking” present it with the greatest risk of the sector, while Bernstein Research believes that banking fees could fall by more than 30%, going so far as to suggest that if we leave the EU Barclays might even need to raise more capital. Bearish predictions suggest we could see as much as a 40% fall in Barclays shares, with Lloyds Banking Group and Royal Bank of Scotland shares dropping by 35% and 25% respectively.
It’s easy to see what the markets think too, as Barclays shares have pretty much followed the Brexit polls — When the ‘leave’ campaign looked like it was gaining the upper hand, the shares dropped to 158p, but now the momentum has turned the other way in recent days, they’re back up to 181p.
Insurance down the pan too?
Something almost identical has happened to Aviva (LSE: AV) too, with Aviva shares falling to 396p last Thursday, a week before the referendum, after the polls reported a surge in favour of leaving. And again, they’re back up again since the ‘remain’ camp has been staging a comeback — Aviva shares are at 440p as I write.
Although the banks are often held up as the companies most likely to suffer if London’s financial firms lose their unfettered access to the EU single market, insurance companies would almost certainly face the same difficulties — especially ones like Aviva, which does around half of its business in the EU.
Writing in the Evening Standard back in April, Aviva boss Mark Wilson came out in favour of staying in the EU, addressing possibly the most important issue in the process, negotiating new trade agreements:
“How long would that take? Seven years? That would be typical. A decade? Do we really want a decade of uncertainty? Because uncertainty is kryptonite to business“.
Those are words to heed.
Consumer products need free markets
Then we come to consumer goods giant Reckitt Benckiser (LSE: RB), which garnered only about 8% of its 2015 turnover here in the UK. EU trading is massive business for Reckitt, and its major US segment is also brokered via EU trade agreements. Should we leave the EU, Reckitt Benckiser would be in the same boat as Unilever, whose bosses have written to employees to tell them that “Unilever in the UK […] would be negatively impacted if the UK were to leave the European Union“.
What do we see if we look at Reckitt Benckiser shares? The same pattern again — with the shares sliding to 6,595p when the Brexiteers looked like they had the upper hand, recovering to 6,791p as the ‘remainers’ have come back.
Whichever shares you look at, it seems clear that the institutional investors don’t want to have to face that Brexit kryptonite, and it seems obvious to me that shares will fall sharply were we to vote ‘leave’. In fact, only today, UBS has warned that we could see a 20% fall in the FTSE 100 within days of a ‘leave’ vote, which would knock a staggering £350bn off the value of shares.