Group 8- Analysis of the strategy of Prundential and HBSC after the Brexit anouncement

Brexit is a shorthand word used to describe Britain’s egress from the European Union. Brexit is the merging of two words Britain and exit. The world coined the term when the UK voted on 23 June 2016 to establish whether the UK should depart or stay in the European Union. Leave prevailed by 52% to 48%. The Brexit vote had a shock on the UK economy as some financial institutions like Prudential and HBSC were reconsidering relocation to other states that were in the European Union.

But, what were the consequences of this decision ?

(http://www.touteleurope.eu/actualite/qu-est-ce-que-le-brexit.html

In What extent the UK, world financial spot and 5th world economic power, by its wish to leave the EU, created uncertainty and instability in the world finance ?
The doubts provoked by the Brexit have once again created turbulence in financial markets. The pound falls, Financial centers become weaker. The disorder now spreads to Europe. Banks are suffering from speculation. The crisis that was already present, could become worse.

(https://www.mediapart.fr/journal/international/dossier/notre-dossier-sur-le-brexit

Let’s focus on the consequences of the withdrawal of the United Kingdom from the solidarity of the European Union :

A financial storm:
The day following the withdrawal of the United Kingdom, the Footsie starts with a decrease of 7%. Also, The markets rushed on the safest value, gold.

« The price per ounce has soared at the time of the results of the referendum to its highest level in two years ».
Years of negotiations with its trading partners:
Also, the UK » will lose trade agreements with the EU and its partners around the world ».


The British will become poorer:

According to experts from the British treasury, « every British household would lose about 4,300 pounds of income per year (€ 5,400). GDP by 2030 lower by 6% (-6%).

An update on customs barriers :
5.6 billion pounds (7.2 billion euros) per year of additional tariffs to be paid for British exporters, according to the World Trade Organization (WTO).

A less attracting country for investors:
JP Morgan Bank, which employs 16,000 people in the UK, relocates more than 2,000 jobs outside the country as a result of the Brexit’s victory in the referendum.

A recession in perspective:
The IMF is considering two scenarios:
-A « limited scenario » and an « unfavorable » scenario
-A ring unemployment
-A leak of talent
-losses for French companies

France is one of the most affected country by the Brexit, according Euler Hermes.
French companies could save up to 3.2 billion euros in additional export losses by 2019, because of fewer British tourists this summer.

(http://www.directmatin.fr/monde/2017-02-04/13-consequences-concretes-du-brexit-732730)

HSBC strategy

According to Douglas Flint , the president of HSBC has evoked a new era for the United Kingdom thus for the British banks. http://www.bilan.ch/argent-finances/hsbc-affirme-engagement-royaume-uni-apres-brexit

According to the independent, the leading global bank, (HSBC) with assets worth $2.6 trillion, had warned to relocate if the UK left the European Union, which is a single market (Yeung, 2016, par 3). This was the bank’s long-term strategy of increasing global connectivity through the flow of goods, services, and finance in personal and commercial exchanges (Annual Report and Accounts, 2015, p.2). In the recent interview on Bloomberg television, HSBC chief executive confirmed the relocation of their staff to Paris. The executive director stated that activities covered by the European Union legislation would relocate, according to their numbers that were 20% of their income (Morris, 2017). HSBC being a global banking model, which attends to several financial needs, based on international connections a policy that is against the protectionist ideology of the Brexit (Annual Report and Accounts, 2015, p.2). The Brexit plan will limit operations of the HSBC, so the relocation strategy is a better option that Prudential Strategy has also been taken up by the.

Prudential strategy

Looking at Britain’s largest insurer like Prudential, the Brexit vote had negative impacts on its stocks. The British insurers were hard hit by the immediate aftermath of the Brexit vote as share prices dropped as expected. Such implications have resulted in companies and businesses considering free operational choices. Prudential contemplates on relocating to Luxemburg or Dublin (Rodionova, 2016).  Patently, the relocation strategy is a matter of survival as companies are taking up positions that can help them react to whatever implications the Brexit offer.

 

References

“Annual Report and Accounts.” (2015). HSBC Bank plc. Retrieved from file:///C:/Users/User/Downloads/hsbc-bank-plc-annual-report-and-accounts-2015.pdf

Morris, S. & Partington, R. (2017). Brexit: HSBC may move 20% of its London banking operations to Paris, chief executive Stuart Gulliver says. The Independent. Retrieved from http://www.independent.co.uk/news/business/news/brexit-latest-news-hsbc-bank-move-20-per-cent-fifth-london-banking-operations-paris-chief-executive-a7532711.html

Rodionova, Z. (2016). Brexit: Prudential could relocate M&G funds due to Britain leaving the EU. The Independent. Retrieved from http://www.independent.co.uk/news/business/news/brexit-latest-news-eu-referendum-prudential-mg-insurance-fund-management-assets-a7183021.html

Yeung, P. (2016). HSBC ‘plans to move 1,000 jobs to Paris’ due to Brexit. The Independent. Retrieved from http://www.independent.co.uk/news/uk/home-news/brexit-hsbc-economy-banks-eu-referendum-latest-jobs-single-market-effects-a7104351.html