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Brexit Anxiety Weighs Heavily on the BBA

Theresa May and Brexit
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December 12, 2016 By: , No Comments

Brexit consensus is proving hard to come by. Prime Minister Theresa May is in the midst of a political firestorm with Parliament, the High Court and now the Supreme Court. She intends to invoke Article 50 of the Lisbon Treaty to begin the extrication process from the EU. Now, pressure is being brought to bear by the British Bankers Association. According to a report, global banking institutions would like the Prime Minister to commit to an open-ended arrangement with European banks. This will provide them with ongoing access to the European Union, long after the United Kingdom has left. As yet, no specifics have been reported. The deal would become effective as soon as the United Kingdom exits the European Union.

 

Until a ratification of the partnership agreement has been reached, this bridging period would remain in effect. Both sides would then determine the nature of the partnership agreement. An adaptation period would follow, during which time banks would be able to prepare for any agreements that come into being. The BBA arrangement is significant in that it would request all UK companies remain subject to the regulations, laws, and requirements of the European Union.

 

In the event of complications arising between EU citizens and UK companies, the ECJ (European Court of Justice) would intervene. At stake are the financial services that banks are currently passporting to the European Union. The City of London stands to lose significant credibility and financial clout if banks cannot safeguard their interests abroad. If such a deal is not brokered, banks will lose important lines of business and a significant number of contracts with European Union customers.

 

UK Banks Loan £1.1 Trillion in Early 2016

Cross-border lending from the UK amounted to $1.1 trillion at the start of 2016. If UK banks cannot maintain their current relationships with the EU, these loans might be voided. The BBA is pushing for an upfront transitional agreement, as opposed to one at the end of negotiations about a Brexit. This is customary business practice in the European Union. Already we are seeing a shift in operations from the City of London to various European countries. Concern is growing that a transitional agreement may not be put in place and banks may lose lucrative contracts.

 

The BBA put out a statement to the effect that bilateral arrangements between the 27-member EU and the United Kingdom could be jeopardized without an agreement. The UK Chancellor of the Exchequer, Philip Hammond has been working alongside Prime Minister Theresa May to hammer out a deal. The British government is playing its cards close to its chest, not wanting to appear desperate for a transitional arrangement. This was evidenced by the Brexit Secretary, David Davis who showed little interest in pursuing a transitional deal. The Brits argue that the EU financial system is in a precarious position and that it would be in their best interest to formulate an entirely new agreement with the City of London.

 

Performance of the FTSE 100 index and the GBP

The FTSE 100 index is currently trading at 6,954.21, up 22.66 points or 0.33%. For the year to date, the index has generated returns of 11.40%. For the past 1 year, the index is up 21.65%. The 52-week trading range of the index is 5,499.51 on the low end and 7,129.83 on the high end. The strongest performers on the index on Friday, 9 December included: Sky PLC (up 26.66%), ITV PLC (+5.51%), Mediclinic International PLC (+4.61%), AstraZeneca PLC (+3.98%) and Smith & Nephew PLC (+3.45%). The GBP/USD pair is currently trading at 1.2577, up 0.03% or $0.004. The pair has depreciated by 14.61% for the year to date, and 0.69% over the past 5 trading days. A weaker GBP goes hand-in-hand with a stronger FTSE 100 index.

 
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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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