Banks Get Reprieve From Brexit Hammering
June 28 2016 - 6:40AM
Dow Jones News
LONDON—U. K. and European bank shares rebounded Tuesday as the
pound gained ground and markets took a pause after two days of
heavy selling.
Barclays PLC and Lloyds Banking Group PLC were both up around 6%
despite two credit-rating downgrades Monday night for the United
Kingdom. The two banks's fortunes are closely tethered to the U.K.
economy and spending and investment. Italian banks also gained
after reports Monday the Italian government might inject €40
billion ($44.11 billion) into its banks.
Analysts at investment banks and brokers made dire warnings
Monday that Britain leaving the U.K. would disrupt operations at
many U.K. and European banks and that political, regulatory and
business uncertainty will persist for months. The sector has seen
many downgrades, and some banks' shares hit all-time lows
Monday.
At the lower prices, Credit Suisse analysts on Tuesday said the
market "could already be close to pricing contagion of a full
Brexit." They said policy makers also will be more likely to act
because of the selloff. But the Credit Suisse analysts said banks
weren't positioned for the market turmoil and what it means for
revenue, and earnings could fall.
Late Monday, the U.K. lost its triple-A rating from Standard
& Poor's Global Ratings over Thursday's vote to leave the
European Union. The ratings agency called it "a seminal event" that
will lead to the country having a less predictable, stable and
effective system.
Fitch Ratings also cut the U.K. rating and predicted "an abrupt
slowdown" in economic growth.
U.K. and European banks have taken the brunt of investors' fears
that Brexit will damage the U.K. and European economies and could
create turmoil across the EU bloc. Many hedge funds were net
holders of European stocks in the lead-up to last week's
referendum, according to notes from investment banks, leaving them
exposed in the rapid selloff.
Write to Margot Patrick at margot.patrick@wsj.com
(END) Dow Jones Newswires
June 28, 2016 06:25 ET (10:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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