- Global NCAP
We’re starting to see the immediate impacts of Britain’s decision on Thursday to leave the European Union.
Stocks are sliding, the British pound is tumbling, and gold is rallying. Bank stocks are getting hammered.
In a note out on Monday, Goldman Sachs analyst Richard Ramsden put together an overview of how the historic decision could affect financial firms across Wall Street.
His team ran a “stress test” on bank earnings, based on a scenario in which there are no additional Fed fund hikes and 1% five-year yields and 1.75% 10-year yields at the end of 2017, which is what the futures market was pricing in at the end of Friday.
The team also assumed a 20% year-on-year decline in capital-markets revenues, a 20% drop in equity markets, and a downshift in mergers and acquisitions.
Under that scenario, bank earnings could drop by more than 10%, while mergers-and-acquisitions advisers could see a near 30% drop. Many boutique banks’ stocks were down 10% or more at about 11:45 a.m. ET on Monday, including Lazard, PJT Partners, and Evercore. Moelis and Greenhill were down about 8%.
Here’s the summary:
- Goldman Sachs
In a separate note, JPMorgan banks analyst Kian Abouhossein cut his earnings-per-share estimates for European banks by 13%. He added that the situation was especially stark for European investment banks, cutting 2018 EPS estimates for European investment banks by 28%.
He said (emphasis his):
“European IBs are to be avoided considering our inability to assess short-termcounterparty, liquidity, and market gapping risk, butalso structural uncertaintysuch as the risk of losing EU ‘passporting,’ whichwould lead to net additional staff and costs for IBs. We are also concernedabout CHF appreciation risk, with every 10% appreciation vs. EUR leadingto an estimated avg. -5% impact on Swiss bank EPS. We cut our 2018EEPS for European IBs by 28%, due to i) avg cut in IB revenues of -9% p.a.and ii) avg cut in WM revenues of -4% p.a.”