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

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