Group 12 – Brexit. How HSBC and Prudential will react?

After the referendum on 23 June 2016, where 52% of the population voted for leaving the EU, the government of the UK started the procedures to withdraw. By 2019 the UK should finally quit the EU. It brings new threats for the UK businesses and citizens which operate in Europe. One of them are HSBC and Prudential

HSBC heading into uncertainty after Brexit

It is a British multinational banking and financial services holding company headquartered in London, United Kingdom. It is the world’s sixth largest bank by total assets with total assets of US$2.410 trillion (as of December 2016).

Strategy:

  • 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 similar to that of Norway, Iceland and Liechtenstein.

  • HSBC to close 62 UK branches as judges stall Brexit vote

The high street bank HSBC has announced that it will shut down 62 branches across the UK on the same day the Supreme court made its decision on the Brexit vote.

The enormous cuts to the branch network could trigger up to 180 job losses, but the bank said it would try and redeploy staff where possible.

  • Concentrate on Asia

Douglas Flint said ‘Concern over the sustainable level of economic growth in China was the most significant feature of the first quarter and, as this moderated, uncertainty over the upcoming UK referendum on membership of the European Union intensified.’

The bank saw demand for credit investment fall as a consequence of uncertainty during the first half of the year, and a chill in equity market activity was exacerbated by factors including a crash in the price of oil.

Analysts said the bank will be more concerned about the impact of China, rather than the EU referendum, as Asia accounted for 83.5 per cent of HSBC’s global profits last year.

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.

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, 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.

Sources:

http://www.nasdaq.com/article/how-can-brexit-impact-prudential-cm643996#ixzz4Y0BGwaHX

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

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

http://www.dailystar.co.uk/news/latest-news/581495/HSBC-brexit-ruling-supreme-court-bank-UK

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