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/

Group16 – HSBC’S and Prudential’s approaches after the announcement of Brexit

According to research from HSBC after Wednesday’s Autumn Statement, Brexit’s hit to the British economy will leave an indelible mark on the country, causing a permanent loss of output, and wiping billions off GDP in the next five years.

HSBC or Hong Kong and Shanghai Banking Corporation a British multinational banking and financial services holding company headquartered in London, United Kingdom. It is the leading global bank, which has assets worth $2.6 trillion (£1.9 trillion).

On the other hand, Prudential Corporation plc is a British multinational life insurance and financial services company which was founded in London in 1848 on the principles of integrity, security and prudence which they still adhere to those values today. Prudential provides protection and savings opportunities for corporate customers, social and economic benefits for communities in which we operate, jobs and opportunities for employees and financial returns for its investors.

So, how did these two major London-originated companies changed their strategies after Brexit had taken place? Let’s take a closer look.

HSBC STRATEGY

At first, HSBC was considering moving its center to Hong Kong when Brexit question was raised. However, HSBC’s board has voted to remain in the UK – a decision that draws a line under almost a year of uncertainty over the future of Europe’s biggest bank. Chairman Douglas Flint said the decision was a « generational » one and is likely to result in the bank remaining in the UK for decades to come.

« As a global, systemically-important bank, in many ways the framework that we’re subject to is independent of location, » Mr Flint said. « I think the UK has got a very developed and internationally-respected regulatory and legal system, it has considerable experience in dealing with complex international matters, because it is the largest and the most international financial centre. Hong Kong is the number three financial centre in the world and it too has the framework in place to handle an institution like HSBC, but we’re already in a framework where that can take place. »

However, there is another option instead of moving the capital far away to Asia. Mr Flint said that, should Britain vote to leave the EU, HSBC might look to relocate some investment banking and other operations to Paris: « If Britain were to vote to leave, it could have a meaningful impact. It would depend on what the negotiation of terms were [for the City of London].

« The likely impact would fall on the wholesale, global banking and markets business. We have the option, given we have a very meaningful bank in France, of adjusting the location of activities and people between the banks. »

HSBC chief executive Stuart Gulliver added that this could amount to roughly 1,000 staff heading over the Channel in the event of Brexit. The timing on that is in around two years’ time when the UK has fully left the EU. HSBC had initially hoped it would not have to move any of their employees. The bank was counting on Britain retaining access to Europe’s single market which allows it to trade and sell all financial products from London. However, such a deal now looks unlikely.

PRUDENTIAL STRATEGY

According to 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 Tidjane 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.

Why most of their strategies are mainly about moving operations to abroad?

« CEOs are reacting to the prevailing uncertainty with contingency planning, »said Simon Collins, KPMG UK chairman.

« Over half believe the UK’s ability to do business will be disrupted once we Brexit and therefore, for many CEOs, it is important that they plan different scenarios to hedge against future disruption. »

The June vote has created uncertainty over Britain’s future economic and trade relationship with the European Union. John Nelson, chairman of Lloyd’s of London, told Reuters last week that the insurance market would be ready to move some of its business to the EU as soon as Britain invoked Article 50 of the EU’s Lisbon Treaty, which triggers the start of exit from the bloc.

What can companies do to minimize the Brexit impacts?

Shedding antiquated legacy technologies and embracing the new digital economy can help CFOs sharpen their risk assessment, drive revenue and identify new areas of focus, depending on market conditions. The right tools can be an effective hedge for business performance, regardless of economic circumstances. A good rule of thumb is to implement processes that are well suited for the following capabilities:

  1. Agility: All teams within the finance organization will be impacted by market volatility. In a changing business environment, it’s important to build flexible platforms that support new revenue and expense models, rapid internal reorganization and greater process automation. By leveraging the right tools (cloud computing, for example), agile companies will be able to have the live insights to make smarter, in-the-moment decisions.
  2. Risk management: Most companies recognize the importance of strategically balancing risk and opportunity in order to create significant competitive advantage and profitability. However, global research commissioned by SAP, revealed that only one in ten organizations are fully satisfied with their GRC tools. Employing the right technology provides transparency into internal activities and brings visibility to supplier and credit risk in the broader ecosystem. Furthermore, real-time management of currency and country risk allows for optimization of exposures and hedging.
  3. Continuous monitoring of operations: To keep pace with real-time transaction processing, finance organizations are embedding compliance monitoring directly into their transactional systems, allowing 24×7 monitoring to keep their organizations safe. With core compliance centralized and automated, focus turns to collaborating effectively with the risk-management function, with a shared goal of protecting the brand. By opening lines of communication between departments (that might not otherwise interact) enterprise risk topics become focus while business networks provide visibility into supplier and credit risk.

Sources:

http://insurance-companies worlds.blogspot.fr/2016/03/prudential.html

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/12156882/HSBC-will-remain-in-London-after-board-makes-final-decision-on-bank-HQ.html

http://uk.businessinsider.com/hsbc-research-brexit-permanent-damage-economy-2016-11?r=US&IR=T

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

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

http://www.reuters.com/article/us-britain-eu-companies-idUSKCN11W002

http://www.huffingtonpost.com/thack-brown-/preparing-for-the-next-br_b_11650346.html