Tuesday, May 17, 2016 Stamford, CT USA — More than half of corporate treasurers and CFOs in the U.K. and continental Europe believe it is at least somewhat likely that the U.K. will leave the European Union. Most of these executives think a so-called “Brexit” would be a disorderly and potentially volatile process. Despite these beliefs, most corporate officers have not taken any actions to minimize the negative effects of a U.K. exit on their companies. 

Greenwich Associates interviewed treasurers at 90 large Western European corporates in the U.K. and continental Europe from April 12–27. The purpose of the study: to find out how businesses are dealing with the uncertainty in the run-up to the vote, how prepared companies are for an outcome that is becoming increasingly likely, and whether the looming referendum is impacting companies’ investment strategies and relationships with their banks. 

The study results establish conclusively that: 1) Companies in the U.K. and continental Europe see Brexit as a real possibility, and 2) Given companies’ deep levels of integration across the two markets, corporate treasury officials think a U.K. exit would have a significant impact on their own businesses and overall trade. In light of this, it is surprising to find that few executives have put in place security measures to protect their companies from the expected volatility.

Fewer than 1 in 4 corporate treasurers interviewed has put in place any hedges to protect against currency and/or interest-rate volatility — the two areas of risk exposure cited most frequently by study participants. Companies have taken even less action on other risks that they see as possible but harder to measure and protect against. Among such risks cited by financial officers are significant changes in regulation effecting trade and capital mobility, decreased access to liquidity and increasing cost of funding, and the possible introduction of a withholding tax. 

“These risks are much on the mind of corporate executives, but companies have taken little or no action to mitigate them,” says Dr. Tobias Miarka, Greenwich Associates Managing Director and author of a new report Brexit: Is Hope a Strategy?

Impact on Trade and Banking
Although most U.K. treasury officers are confident that a Brexit would not reduce U.K./EU trade, a quarter of corporate treasurers in continental Europe think a U.K. exit would have a negative effect. These concerns should be getting more attention in the U.K, since some Continental corporate executives say they are already planning to move operations located in Britain back inside the EU,  should the U.K. vote to leave. 

“Rather than turning to U.K. banks for helps navigating the complexities of newly discrete markets, Continental corporates suggest they will simply move operations out of the U.K.,” says Dr. Tobias Miarka.

In the political debates leading up to the vote, Brexit proponents have made the case that potential losses in trade with the EU would be offset by corresponding gains in trade with the rest of the world. Treasurers and CFOs in the U.K. are not convinced. Only 10% of U.K. corporate treasurers interviewed believe Brexit will help increase trade with partners outside the EU.