Wednesday, September 4, 2019 Stamford, CT USA — Counter to some political arguments in the U.K, large companies and banks see few, if any, upsides to counteract potentially significant downsides associated with Brexit.
A new study from Greenwich Associates finds that Brexit has triggered changes to companies’ operations in cash management, lending/working capital, trade finance, and other areas. Unfortunately for companies, most corporate executives think these and other changes will hurt their businesses.
Impact on Companies
About two-thirds of U.K. study participants and one-third of the Continental companies believe Brexit will have a negative long-term impact on their business, playing out over at least the next five years. That’s in addition to the one-quarter of large European companies who say Brexit has already hurt their businesses.
The good news is that most companies have already taken the steps needed to prepare, and 90% of study participants say their companies are ready for existing and future challenges arising from Brexit.
“For some factions arguing that Brexit may, in fact, open up new opportunities, it is also worth noting that not a single company without a presence in the U.K. plans to commence operations there in a post-Brexit environment,” says Tom Jacques Greenwich Associates Principal and co-author of Brexit: For Companies and Banks, the Worst is Yet to Come.
Impact on Banks
Virtually all the major Brexit-related changes cited by large European companies seem to be working against U.K. banks.
In cash management, a solid majority of companies in continental Europe say that even after Brexit, they will be looking not for specialists in either the U.K. or EU, but rather for pan-European providers that can meet their needs across countries and jurisdictions.
In the area of lending/working capital, half the companies in the study say that after Brexit, it will matter to them where their credit providers book their debt. For U.K. banks, booking debt with EU entities potentially takes their massive U.K. balance sheets off the table, forcing them to rely on the liquidity they are able to generate in the Eurozone and potentially placing them at a competitive disadvantage.
In trade finance, approximately 1 in 3 companies say they are likely to move business away from banks not located in the post-Brexit Eurozone. Separately, more than half of companies in the study say it’s important that their supply-chain finance providers have the ability to operate from both the post-Brexit EU as well as the U.K.
“Across the European marketplace, the impact of Brexit-related changes to companies’ operations in cash management, lending/working capital, trade finance, and other areas is still playing out,” says Dr. Tobias Miarka Greenwich Associates Managing Director and report co-author. “Unfortunately for U.K. banks, especially for those without significant operations on the Continent, none of these changes seem to be working in their favor. Instead, a series of Brexit-triggered changes in corporate demand and preferences appear to be lining up as new headwinds for U.K. banks as they prepare to compete in a post-Brexit Europe.”