Credit Benchmark Shows Global Banks Wary On UK Over Brexit Concerns

Global banks turn more wary on UK over Brexit economic fallout:


Global banks have turned more cautious towards the UK as a potentially economically disruptive vote on EU membership looms in June, according to a rating agency.

Credit Benchmark, an agency that aggregates the internal lending risk assessments of big international banks and uses them to devise ratings, said that lenders had turned slightly more cautious towards the UK earlier this year.

Although it cannot determine whether the more circumspect assessment of the UK’s creditworthiness was directly triggered by mounting concerns over the UK’s future in the EU, the cut came after Boris Johnson, until last week mayor of London, came out in favour of “Brexit” in February.

“We’ve also seen the risks trend higher for UK companies, so it seems reasonable to conclude that it’s being driven by concerns over Brexit,” said David Carruthers, head of research at Credit Benchmark. Nine banks, primarily US and European lenders, report to the agency on their assessment of the UK’s creditworthiness.

The UK rating implied by Credit Benchmark’s data fell one notch to “Aa” in March. That is two notches below the rating assigned by Standard & Poor’s, and one below those of Moody’s and Fitch, but the three major credit rating agencies have all warned of the potential economic fallout from a vote to exit the EU.

S&P, which kept its negative outlook on the UK’s top rating, said in its latest update that the UK leaving the EU “represents a significant risk” to the economy, London’s finance industry, and the country’s exports.

“A vote to leave is likely to hurt confidence, investment, and GDP growth, and is likely to have a negative effect on public finances. As a consequence, a UK departure from the EU would likely lead us to lower the long-term sovereign credit rating,” S&P warned in a report last week.

Sterling has recovered some of its Brexit-induced losses recently, as the intervention of US President Barack Obama has appeared to shift the political momentum towards the Remain camp. But analysts and fund managers remain wary over the impact a vote to leave the EU would have on the UK, and Europe in general.

“It’s a non-trivial risk,” said Thomas Clarke, a fund manager at William Blair, a US asset manager that has pared back its UK equity position and ramped up its bets against sterling in response to the dangers. “There are still six to seven weeks to go, both sides have an incentive to raise the stakes to swing the outcome, and markets don’t like uncertainty.”

Tina Fordham, Citi’s chief political analyst, puts the odds on Brexit at 30-40 per cent as a result of the shift in polls, but stressed in a recent note that the outcome remained ambiguous, and predicted that this uncertainty would continue to cast a pall over markets in the run-up to the referendum on June 23.

She pointed out that the polls did not capture the “certainty to vote” factor, with passionate Brexit supporters more likely to vote in the referendum. This has led to “excessive complacency” over the outcome, she argued.

By Robin Wigglesworth, 09 May 2016, Financial Times


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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.