group 1 :the strategy of prudential and HSBC after the Brexit announcement

 

Analyze the strategy of prudential and HSBC after the Brexit announcement

 

 

Brexit: an economic issue?

Firms and investors in many non-European Union countries have been using Britain as a gateway to Europe, benefitting from the zero-tariff environment and free movement of labour and capital. Accordingly, the main fear here seems to be that, if the United Kingdom voted to leave, foreign direct investment inflows would dry up and parent companies may even close-up shop and move production or offices elsewhere. In addition, given that foreign multinationals tend to be productivity-enhancing, bringing with them new technologies and management practices, a drying up of this investment into Britain could be damaging for the country’s long-term potential.

 

Prudential

 

Prudential is an international financial services group

 

 

Their strategy: to focus on the Asian Market

 

“Our strategy is simply to pursue growth in growing markets,” Thiam, 52, said on the conference call with journalists. “In the U.K. and the U.S. we don’t target growth, it depends on the environment.”

 

Prudential operates throughout Asia including Hong Kong, China, Singapore, Indonesia, Malaysia and Vietnam. Sales in the region have grown for 22 consecutive quarters, the company said today.

In asset management, U.K.-based M&G reported an 8 percent increase in external funds under management to 139.5 billion pounds while in Asia, the Eastspring unit saw new third-party inflows more than double to 2.3 billion pounds.

 

The shares fell 0.8 percent to 1,599.5 pence at 2:56 p.m. in London, trimming the insurer’s gain this year to 7.2 percent.

 

 

HSBC

HSBC Holdings PLC is a British multinational banking and financial services holding company headquartered in London, United Kingdom

 

Their strategy to move some part of employement from London

HSBC is planning to move up to 1,000 staff from the UK to Paris due to Britain’s narrow vote to leave the EU.The leading global bank, which has assets worth $2.6 trillion (£1.9 trillion), has said it will relocate the jobs if the UK leaves the single market, a possible outcome of post-Brexit negotiations, according to the BBC. It is possible the UK could leave the EU but remain a part of the European Economic Area (EEA), in a model like that of Norway, Iceland and Liechtenstein. It is thought the staff to be relocated would be those who process euro payments for HSBC in Canary Wharf.

But the company decided to remain in London in part due to the city’s status as the main financial centre of Europe. Douglas Flint, HSBC’s chairman, said: « The work to establish fresh terms of trade with our European and global partners will be complex and time consuming.

 

In February Douglas Flint had indicated move 1000 jobs out of London But he qualifies this scenario as an“extreme” scenario.

“If you look at elements of the wholesale business which depended upon passporting rights, if you thought we were going to lose all of those passporting rights, to take one extreme, it could be up to 1,000 jobs,” he told TheCityUK’s annual conference in London.

“It is impossible to answer a hypothetical question because it depends on the access that we have [to EU markets].

 

Analysis

 

We can see that both strategy is to reduce their market in the UK but they still remain there. They want to maintain relation with the EU and want profit so prudential go to the growing market of Asia and HSBC prefer Paris.

 

Conclusion

 

Brexit has certainly impact on banks like Prudential and HSBC. The banks are

worried about Britain leaving the European Union — known as a Brexit

because not only would it have to deal with the economic fallout like the rest of the sector, it is also uniquely placed in suffering from a second potential Scottish independence referendum after that

 

 

https://www.bloomberg.com/news/articles/2015-05-06/prudential-new-business-profit-declines-6-in-first-quarter

 

https://woodfordfunds.com/economic-impact-brexit-report/#foreign-investment

 

https://www.ft.com/content/bbabb504-3d4b-11e6-9f2c-36b487ebd80a

 

http://www.telegraph.co.uk/business/2016/06/30/hsbc-plays-down-chance-of-moving-1000-jobs-out-of-london-on-brex/

 

 

Group 13: How did HSBC aand Prudential react after the Brexit.

After the Brexit, that represent the United Kindom’s withdrawal from the European Union, some financial statement needed to made some adaptation on their strategy. It is the case for the HSBC and Prudential.

  • HSBC

HSBC chief executive Stuart Gulliver said trading operations that generate about 20 per cent of revenue for the lender’s investment bank in London may move to Paris, quantifying some of the aftershocks for the UK after Brexit.

“Activities specifically covered by EU legislation will move, and looking at our own numbers, that’s about 20 per cent of revenue,” Gulliver said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland, with John Micklethwait. The bank confirmed that he was referring to the lender’s global banking and markets operations in the UK capital.

Gulliver, who runs one of the world’s most globalised banks, praised Prime Minister Theresa May’s handling of Brexit so far and also said he doesn’t expect a trade war to erupt between the US and China under incoming US President Donald Trump. Such an outcome could damage HSBC, given it makes most of its earnings in Asia. On Tuesday in Davos, Chinese President Xi Pinjing urged business and political elites to reject protectionism in his first public rebuttal of Trump’s rhetoric on trade.

A trade war “would clearly be negative for us,” Gulliver said. “We are the biggest trade-finance bank in the world.”

Gulliver’s remarks touched on hubs of world trade ranging from the US-Mexican border to China’s Pearl River Delta. The Davos gathering has seen policy makers and chief executives address the growing populist backlash against globalization and elites that spurred both Trump’s election in November and Britain’s vote to leave the EU in June.

Gulliver said HSBC will “proceed quite slowly” after May confirmed Tuesday that Britain will leave the European Union’s single market. He repeated his pre-Brexit estimate that 1,000 jobs at the bank’s offices in London are involved with products covered by EU legislation, which probably need to move to France when the UK leaves the single market.

“Some of our fellow bankers have to make decisions quickly” if they don’t have continental subsidiaries like CCF, the French commercial bank HSBC bought in the previous decade, he said.

Gulliver’s estimate of a 20 per cent Brexit revenue exodus from London matches that of Credit Suisse chief executive Tidjane Thiam. In September, Thiam said as much as one-fifth of the volume in the bank’s London operations could be affected by the loss of EU passporting rights.

May set out her most explicit vision of Britain’s future relationship with the EU in a major speech on Tuesday, pledging a “phased process” for exiting the single market that would allow financial-services firms time to adjust. Gulliver said he expects the UK financial-services industry to quickly rebound.

“Irrespective of Brexit, London will remain a global financial center, and the revenue impact of Brexit on financial services will be made good in two to three years’ time,” Gulliver said. Although some derivative operations may need to move, other business areas such as bond and equity trading and underwriting will remain in the UK capital, he said

The new head of Prudential’s M&G fund management arm, Anne Richards, has said it is considering shifting more funds to Dublin and Luxembourg after the Brexit vote.

Richards, who joined in June from Aberdeen Asset Management, said a tenth of M&G’s £255.4bn assets under management were from EU clients. “It’s a very important client base for us.”

Investors spooked by the EU referendum have been withdrawing their money, causing a 10% drop in M&G’s first-half profits. Richards said the firm was considering expanding its Dublin base, where it began building a funds business shortly after the Brexit vote, to maintain access to the EU’s single market.

“What we are trying to do … is give ourselves options so we are in a position to react and adapt,” she said. “Dublin and Luxembourg would potentially be options for us if we decide we want to have additional funds domiciled in Europe.”

This will depend on how the UK’s Brexit negotiations with the EU pan out. Under current rules, investment managers need a base in the EU to sell their funds to continental European retail investors.

Mike Wells, Prudential’s chief executive, who took over from Tidiane Thiam last year , said there was no question of leaving the UK behind after the country’s vote to quit the EU. “We like the market, we are succeeding here,” he said, adding that “at group level the immediate impact will not be material”. Prudential generates 80% of its sales and 70% of its profits outside Europe.

M&G’s operating profits dropped 10% to £225m in the first six months of the year, as investors pulled out nearly £7bn in the run-up to the EU referendum. The fund outflows are now slowing, after the Brexit vote triggered a spike in withdrawals.

This was offset by strong performances elsewhere. Prudential’s profits rose 15% to £743m in Asia, 9% to £642m in the US and 8% to £473m in the UK. Overall, group profits increased 6% to £2.1bn, beating analysts’ forecasts of £1.8bn.

M&G’s optimal income fund, which has many European clients, has seen the biggest withdrawals, and its global dividend fund has also been hit. To offset the outflows, M&G had cut costs by 8% “around compensation, marketing and good housekeeping”, Richards said.

In early July, M&G barred redemptions  to its £4.4bn property portfolio fund, one of several property funds that suspended trading to stop the rush of withdrawals after the Brexit vote.

 

Sources :

-https://en.wikipedia.org/wiki/Brexit

-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

h-ttps://www.theguardian.com/business/2016/aug/10/prudential-may-relocate-m-and-g-funds-brexit-vote

Group 20 – After Brexit: Europe Takes All

Source: les Échos

First of all, we propose you to look at a a very small video in order to better understand the Brexit.


As seen in the article “HSBC ‘plans to move 1,000 jobs to Paris’ due to Brexit“ from the English newspaper ‘The Independent”, France could receive hundreds of jobs seeping out from Britain, as the economic climate is significantly more volatile because of the Brexit vote. HSBC is currently following a relocation strategy, as its London headquarters are no longer suitable to pursue their goals and objectives. Indeed, HSBC is without any doubt one of the most globalized bank, strongly relying on good and stable international agreements which is the opposite of the UK independence and new wave of protectionism.

 

HSBC chief executive Stuart Gulliver also said trading operations that generate about 20 per cent of revenue for the lender’s investment bank in London may move to Paris, as this one fifth may be affected by the loss of EU passporting rights.

Articles

It is also possible that UK could leave the EU but remain a part of the European Economic Area (EEA), in a model similar to that of Norway, Iceland and Liechtenstein.

Employees at HSBC in Canary Wharf, who already process payments made in Euros, would join the 10,000 workers currently based in the French capital under the plans.

A number of other large financial companies including Morgan Stanley, BNP Paribas and JPMorgan have also reportedly made plans to reduce the size of their businesses in the UK, following the referendum result in June.

HSBC currently employs around 48,000 people in the UK, and around 260,000 across the world.

This decision is a direct response to HSBC’s low performances in the first semester following the Brexit vote. Indeed, it’s revenue have decreased by 11% and it’s benefits shrinked by 29% compared to last year results. This is due to a withdrawal of capital by worried investors, as there is a risk of recession due to the current unstable economic climate taking place in the UK.

Source/Full article: http://www.independent.co.uk/news/uk/home-news/brexit-hsbc-economy-banks-eu-referendum-latest-jobs-single-market-effects-a7104351.html

http://www.independent.co.uk/news/uk/home-news/brexit-hsbc-economy-banks-eu-referendum-latest-jobs-single-market-effects-a7104351.htmlhttp://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

______

 

HSBC said the « main near-term economic impact to be elevated uncertainty. » This will hit spending by businesses and individuals and « the impact would likely be most keenly felt in investment, if firms delayed spending until more clarity emerged about the UK’s post-EU arrangements. » As a result, the bank estimates that gross-domestic-product growth will be 1% to 1.5% lower in 2017 than it would have been otherwise.

 

 

Source:

 http://www.rfi.fr/economie/20160803-hsbc-affectee-benefice-net-plonger-brexit-chine-restructuration

http://uk.businessinsider.com/hsbc-what-happens-day-after-britain-votes-leave-brexit-eu-referendum-2016-6?r=DE&IR=T

Prudential CEO, Mike Wells, who has maintained that UK should remain in Europe, has said that a EU exit “would be possible”. He noted that the company generates 87% of its business outside the EU, and said the impact of a Brexit vote in the June referendum would be “manageable”. The group’s investment arm, M&G, would be most affected should Britain leave the EU. “The infrastructure for its distribution is set up in Europe, and an exit from the EU could affect that materially,” Wells said.

Prudential has so far contributed to a record selloff in insurers in London trading.

The insurance giant has stated in August that it may transfer more funds from its asset management arm in London to Luxembourg or Dublin. These transfers will be made in order to maintain access to the EU’s single market after Britain chose to leave the union at the end of June. The new head of Prudential’s M&G fund management arm, Anne Richards has said that a tenth of M&G’s £255.4bn assets under management were from EU clients. “It’s a very important client base for us.”

Like other British insurers, Prudential experienced volatility in its share price due to the uncertainty caused by the EU referendum. Fortunately, strong growth in Asia is helping offset lower profits in Europe. Prudential’s profits rose 15% to £743m in Asia, 9% to £642m in the US and 8% to £473m in the UK. Overall, group profits increased 6% to £2.1bn, beating analysts’ forecasts of £1.8bn.

Sources used:

https://www.theguardian.com/business/2016/mar/09/eu-exit-manageable-prudential-boss-mike-wells

https://www.bloomberg.com/news/articles/2016-06-24/european-banks-plunge-as-brexit-sparks-global-financial-turmoil

http://www.insurancebusinessmag.com/uk/news/breaking-news/prudential-may-move-parts-of-business-postbrexit-36378.aspx

https://www.theguardian.com/business/2016/aug/10/prudential-may-relocate-m-and-g-funds-brexit-vote

 


The section bellow is a counter- argument to the rest of our research: Read it, you may be surprised !🗿

 

It is interesting to notice that despite the general panic atmosphere sizing the insurance or banking industries located in the UK, the situation does seem promising for some.

Indeed, according to an article published by the Telegraph, there is some belief that there would be more business opportunities in the EU for UK insurance companies Post-Brexit than in the Pre-Brexit.

This is because current EU regulations (called Solvency 2) are said to give a strong disadvantage to British firms compared to their continent rivals. British firms have to hold 2 to 3 times more capital, which in turn raise costs, therefore reducing their competitiveness.

Julian Adams, group regulatory director at Prudential says they need a regime that is appropriate to the UK, and hopes that once the UK is out of the EU, they could adopt rules that are suited to the national companies and their consumers.

Source: http://www.telegraph.co.uk/business/2017/01/25/british-insurers-will-competitive-brexit/

Group 17- Analyze the strategy of prudential ad HSBC after the brexit . »

« UK, the most out of favour Region »

About HSBC

As an international bank, its main objective is to be the world’s leading bank and to gain the respect of its customers.  

 

The overall strategy

Our purpose is to be where the growth is, connecting customers to opportunities. We enable businesses to thrive and economies to prosper, helping people fulfil their hopes and dreams and realize their ambitions.

We have developed a long-term strategy that reflects our purpose and distinctive advantages:

  • A network of businesses connecting the world: HSBC is well positioned to capture international trade and capital flows. Our global reach and range of services place us in a strong position to serve clients as they grow from small enterprises into large multinationals
  • Wealth management and retail with local scale: we aim to make the most of opportunities arising from social mobility, wealth creation and long-term demographic changes in our priority growth markets. We will invest in full-scale retail businesses in markets where we can achieve profitable scale

 

After Brexit, Is there any changes in HSBC’s strategies?

Voting for leaving the EU, was with heavy consequences on UK’s economy and especially its banking and financial systems, In a way affecting Institutional equity investors’ choices, they  do not trust anymore the British markets and identify it at a region out of favour in which they won’t put their money.

 

HSBC strategists Robert Parkes and Amit Shrivastava note that globally managed funds have substantially reduced the weightings of their investments in the UK since the June referendum outcome, and are increasingly favouring continental Europe as a place to put their money because of the uncertainty caused by Brexit.

[Source: http://www.businessinsider.fr/us/hsbc-on-brexit-investor-outflows-capital-flight-2016-10/]

 

Post-Brexit: How HSBC managed Risk and Regulations for maintaining the health of its market?

The result of ‘Brexit’ referendum was a shock affecting different markets worldwide, despite polls predicting a knife-edge result. Actually it is quite interesting to look at the steps HSBC provided to manage risks that corporate treasurers can consider.

 

HSBC has experience in following the world’s most significant risk events, and a wealth of expertise, HSBC is proactive in working with customers to define and implement hedging programmes which combine stability and dynamism to reflect changing market conditions.

Treasurers need to have a hedging programme consistent with their internal treasury policy and such policy in turn has to match the underlying business requirement, this varies from sector to sector or from company to company depending on global exposure.

Step one: Hedge ratios and time horizon

Having defined the hedging objectives, the next step treasurers need to decide is the proportion of exposures appropriate for their industry, shareholders’ risk appetite, and the risk management horizon. For instance, a heavy engineering company typically hedges over one to ten years, while a retailer may have a risk management horizon extending from one to six months. Inevitably, the time ‘buckets’ will be quite different in each case, as will the hedge ratio in each ‘bucket’, with most companies choosing to decrease the level of hedging over time depending on the reliability of forecast exposures. For example, a company may choose to hedge 100 per cent of exposures during the following month or quarter, but only 10 or 20 per cent in the sixth month or quarter.

Step two: Hedging approaches

Once the hedge ratio and appropriate time horizon have been determined, treasurers can decide what style of hedging will allow them to meet their risk management needs most precisely. As figure 1 shows, this can be:

 

  • Static (eg hedging for a whole quarter at the start of that quarter)
  • Rolling (eg hedging every month for the corresponding month in the following quarter)
  • Layered (eg hedge one third of each month for the following rolling quarter)
  • Or a combination of all three

 

These strategies tend to produce a significantly smoother outcome compared with hedging on a spot basis, as they are based on the concept of moving averages but this is not guaranteed. In the example given in figure 2, a static approach results in the greatest volatility, with a layered approach resulting in the least volatility.

Figure 1. Static, rolling and layered hedging with impact of different hedging approaches

Figure 2. Impact of different hedge approaches

Source: HSBC Global Markets, August 2016 Bloomberg

Step three: A balanced portfolio

Once the second step has been agreed, the next step is to determine the most appropriate hedging instruments to use for balanced portfolio. When a spot is trading at the middle of its range in a mean reverting currency, there is great uncertainty about the future direction, whereas when it’s at the higher or lower end, it’s more likely to move towards the average. This can influence a treasurer’s choice over the ratio of each instrument to employ, and the tenor of hedging transactions. For example, if spot is trading at unfavourable levels, the treasurer may not want to hedge so much volume or for long term so as to avoid  locking in potentially unfavourable rates. Consequently, they may favour the use of options rather than forwards for a shorter time period.

HSBC works with clients to model different approaches and outcomes, and then  benchmark each strategy with hindsight to determine how successful it was, or would have been.

Figure 3. Analysing hedge scenarios

Scenario 3 (in figure 3 above) is more appropriate when the currency is trading at a long term mean. Dynamically however it can be split on the basis of a multi-year average (30 years in this example) with tenors increasing or decreasing depending on the risk profile.

For instance, assuming a GBP-USD rate of 1.3200, if a client was a buyer of GBP, their fixed hedges are likely to be higher compared with flexible and unhedged positions.

As currency moves in a client’s favour, they would typically increase the hedging tenors to longer dates to enjoy the favourable rate and vice versa (figure 4).

Figure 4. Flexible hedging in practice and balancing flow certainty with currency volatility

HSBC analytics, Bloomberg

Forms of uncertainty

An event-type or one-time exposure needs a different set of solutions compared with the regular hedging that requires a lot of forethought in terms of analysis, prior to engaging into any hedging activities. Using the Brexit referendum as an example, institutions exposed to the affected currency pair risk found themselves balanced on a precipice from which they could be pushed in either direction, resulting in a major gain or significant loss. Hedging such a risk using fixed mechanisms, like forward contracts, removes the opportunity to derive advantage compared with leaving the risk fully open: a simple case of heads or tails, where only one of the said two strategies are likely to win. A flexible option-linked solution on the other hand came at an inflated price compared with times of normal volatility. The only factor potentially providing respite on pricing was the short duration trade, as the time value element post-referendum more or less reflected the uncertainty falling way beyond the result date.

There is no single, right or wrong mechanism to hedge FX, it depends on factors such as the cost of hedging, margins in the underlying business, currency volatility, flow certainty, budgets etc. Regular disciplined hedging, with a mix of different solutions could offer an outcome that provides reduced volatility over a longer time frame.

HSBC has discussed this approach with its clients who have greeted this dynamic, blended approach to hedging very favourably, and in many cases, it is relatively new to some treasurers. Many have upper and lower hedging bands, but they don’t necessarily use a mix of instruments, even though these may be authorised as part of the treasury policy. Witnessing the effect of the Brexit referendum on GBP exchange rates should be a catalyst to test existing policies and approaches, and refine them accordingly. There have rarely been such significant event-risk instances of a liquid currency of a developed country. For many companies, the political, economic and market volatility that is likely to ensue, not only in the UK but more widely, has effectively removed their ability to predict future cash flow, so adopting a flexible, balanced method for managing currency risk has never been so important.

 

About Prudential

 

The United Kingdom’s Brexit vote has major implications for the insurance and financial sectors, considering their investment yields and income are likely to fall due to the pressure on interest rates. Prudential ‘s ( PRU ) stock fell over 7% following the Brexit vote on June 23 amid increased economic uncertainty and fears of falling investment income owing to subdued interest rates and falling yields. However, it has since recovered on expectations of additional stimulus measures by central banks around the world to tide over the Brexit-related decline in trade and money supply.

 

Impact Of Lower Interest Rates

Prudential is expected to generate about 20% of its revenues from investments in the global markets in 2016, totaling about $11 billion.

The risk of persistent lower interest rates will definitely impact this metric, considering fixed maturity securities contributed almost 67% of Prudential’s net investment income in the last two years.

  • Prudential has considerable exposure to fixed maturity securities in the U.S., U.K as well as the rest of Europe. Post-Brexit, the yield on the 10-year U.S. treasury note fell below 1.5% for the first time since 2012, yields on U.K. benchmark government bonds fell below 1% for the first time on record and 10-year government bond yields in Germany ended below 0%. Other developed economies such as France, Sweden, Switzerland and Japan all touched all-time lows.

The fall in investment yields is likely to have a considerable impact on Prudential’s valuation, considering that investments contribute over 20% of the company’s valuation, per our estimates. We expect Prudential’s yield on U.S. retirement assets to decline to around 0.8% by the end of our forecast period. Owing to persistent low interest rates and falling government bond yields, there could be a downside of about 10% to the company’s valuation if its yield on U.S. retirement assets declines to about 0.7%.

Group 14 – the strategy of Prudential and HSBC after the Brexit announcement

the strategy of Prudential and HSBC after the Brexit announcement

After the announcement of an hypothesis Brexit and after the confirmation of what would happen, company took some guidelines to follow. Among those companies, two banks explain about what is the future for their employees, and structure in England. Those international banks are HSBC & Prudential. 

“Well, Wells is actually a giant retail bank that doesn’t do all that much business in Europe. The big investment banks that do, and that fuel the City of London, have taken a rather different view to it.HSBC warned that it could shift jobs to Paris in the event of an “out” vote before the EU referendum. Its US peers have been saying much the same thing in its aftermath. At the start of the month Goldman Sachs warned that it may have to “restructure” its UK operations which currently employ about 6,000 people. JP Morgan’s chief executive Jamie Dimon earlier said that his bank might have to move thousands of employees to other European centres. Similar noises have been rumoured at Morgan Stanley.”

“HSBC, for one, thinks that abandoning the 2020 target could give him room to hike borrowing by £50bn in the next financial year. The aim would be to spend the money on infrastructure, thus pepping up a stalling economy. It might even work. But it might not.”

“The result sets the U.K. up for years of bitter divorce talks with the first salvos likely to be fired at an EU leaders’ summit next week. The U.K. must now count the economic and financial cost of an exit that Cameron warned would spark a recession. JPMorgan Chase & Co. and HSBC Holdings Plc have said a so-called Brexit would lead them to move thousands of jobs out of London.”

“HSBC, which earlier this year opted to keep its headquarters in London, plunged 3.7 percent in London trading. The selloff was compounded by the fact that markets had rallied over the past week on optimism that the U.K. would vote to stay.”

“The answer to the question is absolutely not – it does not change our business strategy just because the UK voted to leave Europe. It will, of course, change the way that our commercial, retail and private bank customers may need our support, particularly in the next few years.

The UK will continue to be a key part of our global network. It is one of our two home markets – the other being Hong Kong. It is also the home to our global headquarters and that will not change – we remain headquartered in London.

The relocation of HSBC UK’s head office will begin at the end of 2017 and will bring 1,200 jobs to Birmingham.

« We see Birmingham as the centre of a £110bn regional economy, » Hinshelwood added. « It has the largest concentration of businesses outside of London, home to 37,000 companies and it really gives us an opportunity to contribute to regional growth. »

HSBC UK will be based at a 210,000 sq ft office at Two Arena Central (pictured). At the time, the agreement of a 250-year lease with Arena Central Developments was the largest property deal in the city since 2002.”

 

On the other side, Prudential adopt also some guidelines for after the Brexit.

Prudential, the UK’s largest insurer by value, has said it is considering shifting funds from M&G, its assets management business, to Dublin or Luxembourg following UK’s vote to leave the EU.

 

A tenth of Prudential’s M&G’s £255.4 billion in assets under management are from EU clients.

Anne Richard, the chief executive of M&G, said the decision to move assets will depend on the outcome of UK’s negotiations with the EU.

« What we are trying to do as a business is give ourselves options so we are in a position to react and adapt to whatever negotiations come through over the next year or so regarding Brexit, » Richard said.

« We have, at the moment, business domiciled in both Dublin and Luxemburg so both of those would potentially be options for us if we felt that we should have additional funds domiciled in continental Europe, » she added.

British insurers were hit hard in the immediate aftermath of the Brexit vote, with share prices tumbling on expectations that the fallout in the broader economy would hurt the firms.

« On Brexit it is a challenge for the whole industry in that we don’t know exactly what form it will take. Will there be fund passporting from the UK to Europe, and vice versa, or not? »  Richard said.

The news that Prudential UK operations could be hit by Brexit came as the group released its first half results.

Prudential posted a 6 per cent increase in first-half profit as a jump in earnings at its Asia business helped it to beat analyst estimates and offset lower profits from M&G

M&G’s operating profit declined by 10 per cent to £225 million.

https://www.insidermedia.com/insider/midlands/hsbc-committed-to-birmingham-move-after-brexit

http://www.independent.co.uk/news/business/news/brexit-latest-news-eu-referendum-prudential-mg-insurance-fund-management-assets-a7183021.html

https://www.bloomberg.com/news/articles/2016-06-24/u-k-votes-for-brexit-in-rupture-with-european-order-bbc-says

http://www.independent.co.uk/news/business/comment/brexit-britain-what-s-happened-so-far-and-what-to-expect-if-article-50-is-triggered-a7205071.html

 

 

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

Group 2: Analyse the strategy Of Prudential and HSBC after the announcement of the Brexit

The Brexit have been a shock for the financial market in U.K. This announce have been not predicted by the market which are sure that it will not occur. U.K market is today in the incertitude that’s why some company have to adapt their strategy in order to decrease the impact of the Brexit; this is the case for Prudential & HSBC. First, we going to see which strategy choose Prudential since the Brexit announcement, then we looking the strategy of HSBC before comparing the two strategy that these company have chosen.

Prudential Strategy

Who is Prudential?

Prudential plc is a British multinational life insurance and financial services company headquartered in London, United Kingdom. It was founded in London in May 1848 as The Prudential Mutual Assurance Investment and Loan Association to provide loans to professional and working people. Today, Prudential UK division has around 7 million customers and is a leading provider of life insurance and pensions in the UK.

What is their strategy?

According to the Independent Prudential is going to relocate all  has said it is considering shifting funds from M&G, its assets management business, to Dublin or Luxembourg following UK’s vote to leave the EU.A tenth of Prudential’s M&G’s £255.4 billion in assets under management are from EU clients.

Whoever this decision is not acted, all will depend of the negotiation that will occur between U.K. and the E.U. The company is already set up in country as Dublin & Luxembourg and already 87% of its business come from outside the EU. For Prudential’s Manager, the effect on the Brexit would be “Manageable”. Moreover, the company continue to invest in Asia, where the market knows a strong growth and that is helping Prudential to offset lower profits in Europe.

On the other hand, the company admitted in a statement accompanying its first-half results that its UK-domiciled operations (including its fund management arm M&G) could be negatively impacted by Brexit.

Thanks to these different information, the strategy of Prudential can be sum-up clearly: Wait & See what is going on during the negotiation and if the context is not favourable relocate a big part of their found inside country where they are well implanted (Dublin, Luxembourg).

Sum-up of Prudrential perspectives concerning Brexit

 

HSBC Strategy

Who is HSBC?

HSBC Bank plc is one of the largest banking and financial services organisations in the world. HSBC’s international network comprises around 7,500 offices in over 80 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.

What is their strategy?

Since the announcement of the Brexit and more particular since few days the strategy of HSBC become clear the U.K bank want to relocate his employment.

Indeed, HSBC is planning to move up to 1,000 staff from the UK to Paris due to Britain’s narrow vote to leave the EU.The leading global bank, which has assets worth $2.6 trillion (£1.9 trillion), has said it will relocate the jobs if the UK leaves the single market, a possible outcome of post-Brexit negotiations, according to the BBC. It is possible the UK could leave the EU but remain a part of the European Economic Area (EEA), in a model like that of Norway, Iceland and Liechtenstein. It is thought the staff to be relocated would be those who process euro payments for HSBC in Canary Wharf.

Among others, Morgan Stanley, BNP Paribas and JPMorgan have also reportedly made plans to reduce their UK operations following the vote to Brexit, the Independent reports. HSBC currently employs around 48,000 people in the UK, and around 260,000 across the world.HSBC, which carries out a significant amount of its business in Asia, considered moving its headquarters to Hong Kong earlier this year.

But the company decided to remain in London in part due to the city’s status as the main financial centre of Europe. Douglas Flint, HSBC’s chairman, said: « The work to establish fresh terms of trade with our European and global partners will be complex and time consuming.

« We will be working tirelessly in the coming weeks and months to help our customers adjust to and prepare for the new environment. »

Prudential vs HSBC Strategy

Since the Brexit lot of financial place around the world and more particularly in Europe make a big eye to the “City” of London and try to attract them.

We can see that the strategy of these two group are very similar and could be sum-up in 3 main point :

  • Waiting the end of the negotiation between UK & E.U to see if U.K stay inside the EEA.
  • Continuing their investment in Asia where the continent knows a strong growth.
  • Relocate a part of their activity & their employment inside the central E.U if Prudential choose Dublin & Luxembourg. HSBC prefer chose Paris.

Source:

http://www.independent.co.uk/news/uk/home-news/brexit-hsbc-economy-banks-eu-referendum-latest-jobs-single-market-effects-a7104351.html

https://www.fundstrategy.co.uk/hsbc-move-1000-jobs-london-brexit/

http://www.independent.co.uk/news/business/news/brexit-latest-news-eu-referendum-prudential-mg-insurance-fund-management-assets-a7183021.html

https://investment.prudential.com/wps/portal/pipub?uri=urlmap:learningCenter.brexit:vig.T1&pageId=3224

 

 

 

Group 7: Analysis of the strategy of Prundential and HBSC after the Brexit anouncement

What does Brexit mean?

It is a word that has become used as a shorthand way of saying the UK leaving the European Union – often known as the EU, which is an economic and political partnership involving 28 European countries – merging the words Britain and exit to get Brexit, in a same way as a possible Greek exit from the euro was dubbed Grexit in the past.

Why is Britain leaving the European Union?

A referendum – a vote in which everyone (or nearly everyone) of voting age can take part – was held on Thursday 23 June, to decide whether the UK should leave or remain in the European Union. Leave won by 52% to 48%. The referendum turnout was 71.8%, with more than 30 million people voting.

The Brexit has made an important on the UK pound when happened. In fact it has lead to the devaluation of the sterling. And a lot of financial insistutions have suffered of this devaluation. We are going to illustrate this by the example of the HBSC and the Prudential.

Actions of HBSC after the annoncement of the Brexit : HSBC ‘plans to move 1,000 jobs to Paris’ due to Brexit

The top boss of HSBC has said it is planning to move some staff from London to Paris following Britain’s exit from the European Union.

Chief Executive Stuart Gulliver revealed that in interviews at the World Economic Forum in Davos, Switzerland.

He said that Europe’s biggest bank would likely look to shift around 1,000 workers who generate around 20 percent of its trading revenue.

HSBC’s global banking and markets division that houses those trading jobs made profits of $384 million in the UK in 2015, according to a company filing.

The timing on that is in around two years’ time when the UK has fully left the EU.

“We’re not moving this year and maybe not even next year. We will move in about two years time when Brexit becomes effective,” Gulliver said.

HSBC is at an advantage to its major US rivals as it already has a large subsidiary in Paris that holds most of the licences needed by an investment bank, meaning Gulliver has been able to set out more detailed plans.

Gulliver said HSBC will especially monitor developments on work permits, given that his bank’s UK operations employ about 2,100 EU citizens in the UK and 1,300 more staff from outside the bloc.

HSBC is in the middle of a program to redeploy as much as £122bn in assets to Asia and hire 4,000 people in the Pearl River Delta region around Hong Kong.

Actions of Prudential after the Brexit anouncement :  Prudential could relocate M&G funds due to Britain leaving the EU

Prudential said its UK operations, which includes fund management division M&G, could be hit by Brexit.

Prudential, the UK’s largest insurer by value, has said it is considering shifting funds from M&G, its assets management business, to Dublin or Luxembourg following UK’s vote to leave the EU.

A tenth of Prudential’s M&G’s £255.4 billion in assets under management are from EU clients.

Anne Richard, the chief executive of M&G, said the decision to move assets will depend on the outcome of UK’s negotiations with the EU.

« What we are trying to do as a business is give ourselves options so we are in a position to react and adapt to whatever negotiations come through over the next year or so regarding Brexit, » Richard said.

« We have, at the moment, business domiciled in both Dublin and Luxemburg so both of those would potentially be options for us if we felt that we should have additional funds domiciled in continental Europe, » she added.

British insurers were hit hard in the immediate aftermath of the Brexit vote, with share prices tumbling on expectations that the fallout in the broader economy would hurt the firms.

« On Brexit it is a challenge for the whole industry in that we don’t know exactly what form it will take. Will there be fund passporting from the UK to Europe, and vice versa, or not? »  Richard said.

The news that Prudential UK operations could be hit by Brexit came as the group released its first half results.

Prudential posted a 6 per cent increase in first-half profit as a jump in earnings at its Asia business helped it to beat analyst estimates and offset lower profits from M&G

M&G’s operating profit declined by 10 per cent to £225 million.

References

http://www.bbc.com/news/uk-politics-32810887

http://www.euronews.com/2017/01/18/hsbc-to-move-1000-staff-from-london-to-paris-after-brexit

http://www.independent.co.uk/news/business/news/brexit-latest-news-eu-referendum-prudential-mg-insurance-fund-management-assets-a7183021.html

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

Group 21- Brexit, Changing HSBC’s and Prudential’s Paths

The year 2016 will certainly be remembered because of its many catastrophes all around the globe, its polemical presidential campaigns, and the decision taken by the UK’s population. The Brexit truly impacted the entire world, especially because of its uncertainty. Many companies were forced to take measures to ensure their survival, particularly when some of their operations were located in the United Kingdom. HSBC and Prudential insurance are some of these organizations.

 

 

According to Nasdaq, Prudential stocks fell by 7% after the Brexit referendum, the main reason being low interest rates. As yields and interest rates were below average, Prudential revenues were also expected to be low. The reason is that 67% of its income was represented by the fixed maturities bought during the last two years.

 

For the first time since 2012, the yield on the 10-year U.S. treasury note fell below 1.5%, whereas the yield of U.K’s bonds diminished to less than 1%. According to Nasdaq, because Prudential’s investments were evaluated at 20%, the drop in investment yields impacted its value. As the Brexit affected interest rates, and thus Prudential’s investments, Nasdaq argued that “yields on the U.S. retirement assets” would also decrease. In fact, they were likely to decline to 0.8%. Hence, Prudential decided to temporarily close its fund located in the United Kingdom, when the final decision of the Brexit was announced.

 

Since Prudential management division is placed in England, Brexit could definitely affect its annual fees. This is why Prudential was planning to relocate its fund known as M&G, to Berlin or Luxembourg, as it already had operations in these countries. Even if most of Prudential customers were outside of the European Union, a tenth of its assets, representing £255.4 billion pounds, were from clients belonging to european market. Subsequently, it became vital to relocate as the Brexit could definitely rise the cost of transactions if remaining in London.

 

  

 

Those graphs show the price of Prudential shares between March 2014 and January 2017. However, we noticed that the price fell down when the Brexit has been announced.

 

 

In contrast with Prudential’s strategy, the first reaction that HSBC holdings had after the Brexit announcement was to keep its headquarters in London, according to the Guardian. Stuart Gulliver, HSBC’s chief executive, “Having HSBC’s headquarters in the UK, and  significant business in Asia Pacific delivers the best of both worlds to HSBC’s stakeholders.” HSBC believes that London, with its internationally respected regulatory and legal framework, is an important and world leading financial center. It has abundant experience in solving complex international affairs, and offers platforms to thousands of highly skilled international people. Thus, it remained to be the ideal position, and home base for HSBC. According to The Treasury, HSBC’s decision to keep headquarters in the UK could also boost their goal of making the UK a great place to do more business with China and the rest of Asia.

 

On the other hand, recent news stated that HSBC warned that it would shift 1,000  banking jobs from London to Paris if UK decided to leave the EU, as it already had operations in this city. Chief Executive Stuart Gulliver confirmed that HSBC was going to move staffs which were responsible for generating around a fifth of its trading revenue to Paris. This indicates that even if HSBC was willing to do more business in the United Kingdom with Asian countries, european markets are still highly important for this company’s welfare.

 

The strategies implemented by HSBC and Prudential insurance were almost the same, as both companies’ first option was to relocate to their subsidiaries already settled in Europe. Even if HSBC hesitated at first about leaving its headquarters in London, it finally decided to relocate 1,000 jobs to Paris because France is still part of the European Union.  As the outcomes of the Brexit are still uncertain, these organizations decided to prevent losses, and take action. Many are the speculations of how the Brexit is going to affect multinational businesses located in the United Kingdom, however, only time will dictate the real outcomes.

 

Sources:

Davos. “HSBC, UBS to shift 1,000 jobs each from UK in Brexit blow to London”. Reuters. January 18th, 2017. Web. February 6th, 2017.

http://uk.reuters.com/article/us-davos-meeting-hsbc-idUKKBN1520SO

Graph substracted from Prudential’s website on February 6th, 2017.

http://www.prudential.co.uk/investors/share-price-information/london-share-price/chart  

 

Rodionova, Zlata. “Brexit: Prudential could relocate M&G funds due to Britain leaving the EU”. The Independent. August 10th, 2016. Web. February 6th, 2017.

 http://www.independent.co.uk/news/business/news/brexit-latest-news-eu-referendum-prudential-mg-insurance-fund-management-assets-a7183021.html

Trefis. “How can Brexit impact Prudential?”. Nasdaq. July 1st, 2016. Web. February 6th, 2017. http://www.nasdaq.com/article/how-can-brexit-impact-prudential-cm643996

Treanor, Jill. “HSBC to keep its headquarters in London”. The Guardian. February 15th, 2016. Web. February 6th, 2017.

https://www.theguardian.com/business/2016/feb/14/hsbc-to-keep-its-headquarters-in-the-uk

Group 15 – HSBC and Prudential, The day after Brexit announcement

  • HSBC ‘plans to move 1,000 jobs to Paris’ due to Brexit :

    HSBC ‘plans to move 1,000 jobs to Paris’ due to Brexit :  After the Brexit, HSBC is planning to move up 1000 workers from the UK to Paris. There are already 10000 currently staff in Paris. Besides, around 48 000 workers are based in the UK and 260 000 across the world. HSBC forecast this week that inflation could increase to 4 per cent within 18 months after the pound sterling’s Brexit-induced collapse.

    « We’re not moving this year and maybe not even next year, » Gulliver said in an interview on the sidelines of the annual meeting of the World Economic Forum in Davos.

    « We will move in about two years time when Brexit becomes effective, » Gulliver added.

  • Prudential could relocate M&G funds :

    After the Brexit, Prudential, the UK’s largest insurer by value, has said it is considering shifting funds from M&G, its assets management business, to Dublin or Luxembourg. Richards, who joined in June from Aberdeen Asset Management, said a tenth of M&G’s £255.4bn assets under management were from EU clients. “It’s a very important client base for us.”

  • Impact Of Lower Interest Rates (Prudential) :

Prudential is expected to generate about 20% of its revenues from investments in the global markets in 2016, totaling about $11 billion. 
The risk of persistent lower interest rates will definitely impact this metric, considering fixed maturity securities contributed almost 67% of Prudential’s net investment income in the last two years. Prudential has considerable exposure o fixed maturity securities in the U.S., U.K as well as the rest of Europe. Post-Brexit, the yield on the 10-year U.S. treasury note fell below 1.5% for the first time since 2012, yields on U.K. benchmark government bonds fell below 1% for the first time on record and 10-year government bond yields in Germany ended below 0%. Other developed economies such as France, Sweden, Switzerland and Japan all touched all-time lows.
pru-15 

  • UK Insurer Prudential could move funds to Luxembourg :

    UK Insurance Broker Prudential stated on Wednesday that the group may move some of its funds business from London to Luxembourg following the UK’s Brexit vote to leave the European Union.

    A move would mean that the insurer’s investment management arm M&G could contribute in distributing its funds throughout the EU.

    M&G’s chief executive Anne Richard told reporters on Wednesday that the company could increase the number of its funds domiciled in Luxembourg and also Dublin, depending on the outcome of Brexit negotiations.

    “What we are trying to do is give ourselves options so we are in a position to react and adapt,” Richard told Reuters new agency.

    “Dublin and Luxembourg would potentially be options for us if we decide we want to have additional funds domiciled in Europe.”

    In the first half of 2016, Prudential performed better than forecast, reporting a 2.4 billion euro profit, due mostly to growth in Asia triggering rising share results.

References

http://www.independent.co.uk/news/uk/home-news/brexit-hsbc-economy-banks-eu-referendum-latest-jobs-single-market-effects-a7104351.html

http://www.cnbc.com/2017/01/18/reuters-america-update-1-hsbc-to-shift-staff-from-britain-to-paris-after-brexit.html

http://www.nasdaq.com/article/how-can-brexit-impact-prudential-cm643996

http://www.independent.co.uk/news/business/news/brexit-latest-news-eu-referendum-prudential-mg-insurance-fund-management-assets-a7183021.html

http://www.wort.lu/en/business/following-brexit-uk-insurer-prudential-could-move-funds-to-luxembourg-57ac8e3aac730ff4e7f64dba