Brexit Volatility Creates Winners And Losers

The Brexit vote was a shocker, but the turmoil it wrought benefited some.



Britain’s vote to leave the European Union sent shock waves through global capital markets, but the increased volatility lifted trading revenue at big global banks and created a significant number of winners alongside the losers.

The plunge in the British pound and assets boosted fixed-income, currency and commodities (FICC) trading revenue in the second-quarter for the five US global trading and universal banks, but the Brexit vote could dampen future income if protracted uncertainty leads to reduced client trading activity, according to Fitch Ratings. FICC revenues rose 20% from a year earlier in the second quarter, while debt underwriting was up by 19%.

Financial advisory services was the only key segment to report a decline in revenues, but this falloff also reflects a shrinking backlog for mergers and acquisitions and the late stages of the M&A cycle, Fitch says.

The wave of Brexit-driven uncertainty for M&A leaders doesn’t necessarily mean M&A will suffer, says Cahal Dowds, vice chairman of Deloitte’s corporate finance advisory business. “In the first half of this year, appetite for US-UK acquisitions persisted despite a global slowdown in M&A,” Dowds says. US acquirers announced 168 deals into the UK in that time, the same number as in the first half of 2015. However, the dollar value declined to $15.4 billion from $18.4 billion. Short-term jitters in the important US-UK deal corridor will dissipate relatively quickly, Deloitte says.

The impact of Brexit on global businesses has already been significant. Qatar Airways took advantage of a decline in the share price of International Airlines Group, the parent of British Airways, to boost its stake in IAG to more than 20% from just over 15%. And Anheuser-Busch InBev raised its offer for rival brewer SABMiller to more than $100 billion to keep the deal alive, amid concerns about its valuation, after the British pound plunged.

Investor concerns raise borrowing costs for some European investment-grade corporates, Moody’s Investors Service says. “Funding costs for some companies in real estate, transportation or general manufacturing could creep higher as investors’ concerns about the potential impact of the Brexit vote on business conditions increase,” said Richard Morawetz, a senior credit officer for Moody’s corporate finance group. However, refinancing risks for investment-grade European nonfinancial companies are very low over the next four years, Moody’s says.

Meanwhile, Vodafone, the largest UK telecom, took advantage of low yields ahead of the Bank of England’s rate cut in August to issue a £800 million ($1,037 million) 33-year bond, its first deal denominated in British pounds since 2009.

The Brexit vote will keep rocking global capital markets as firms are forced to reevaluate their European strategies, according to TABB Group, which surveyed 322 market participants. European and British respondents were the most negative on potential impacts, while the US and Asia were more optimistic. It seems the rest of the world is expecting to benefit at the expense of the UK and Europe, says TABB Group partner Andy Nybo.

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