Will Brexit’s Headwinds Pack A Punch To US Bank Earnings?

The looming vote next week where Britons will vote on whether their nation should stay within the European Union or exit would have a significant impact on bank earnings were the latter scenario to play out, Reuters reported on Thursday (June 16).

Large U.S. banks would see their earnings slashed by between 1 and 6 percent if the Brits do leave the union, according to an analysis by Wall Street firm Keefe, Bruyette & Woods. The key impacts would come as costs would be ratcheted up and capital markets activity would no doubt be dampened. Among the hardest hit would be Goldman Sachs and Morgan Stanley, as defined by their capital markets exposure.

The analysts at the sell-side firm estimated that the transition period for the banks overall, dealing with both top and bottom line pressures, could be two years. The impact to the earnings profile for the group as a whole would be about 3 percent, said the note, and eventually, as stated in the research and as quoted by the newswire, the impact overall across the industry for the U.S. universal banks, at least, should be a “wash.” The least likely to be fazed by the prospect of, and actual vagaries of dealing with, an actual Brexit would be Wells Fargo, as cited by Reuters, with heavy emphasis on mortgage lending.