How Wall Street is Handling Brexit

Brexit was a typhoon for some, but might have been expected by others. Wall Street needed to hedge its bets and handle any possible outcome. Here is how the sanguine Wall Street leaders are handling Brexit.

 

Wall Street Warns Against Brexit

Experts have described Brexit in many diverse ways. For some, Brexit was the British version of the 1776 Declaration of Independence. Others, see it as the nail in the coffin for London as a banking centre. Which is more accurate?

While regular individuals might think like this, Wall Street professionals don’t think this way. Wall Street’s goal is to make profits.

Brexit was a sea change that demonstrated profound dissatisfaction in the future of the European Union (EU). Some would say it should have been expected, in fact, George Soros made a big bet that Brexit would occur.

The United States and England are cousins sharing the same history, language, culture and many banking features. In fact the very naming of Wall Street (US) and High Street (UK) shows how close the systems are linked at the hip. In 2008, the US had its “Subprime Mortgage Crisis” and the UK had its “Credit Crunch.” The following sequence is very important:

  • Banking Layoffs
  • Threats Before Brexit
  • Wait & See

Successful banking is based on risk assessment. Allowing for a vote on Brexit was actually a promise made by British Prime Minister David Cameron, years previously. The British have never been gung-ho about the European Union; they even retained their own Great British Pound (GBP).

Both Wall Street and High Street banks started making layoffs before Brexit. In June 2015, the Washington Times reported that banks were “shedding thousands of workers and shaking up the boardroom in a bid to stay profitable and relevant in a fast-changing financial landscape.”

 

Wall Street Bluff

In poker, players can bluff all they want, hoping to deter opponents from continuing. If the bluff fails, then the bluffer loses. Wall Street “threatened tremendous job losses in the City of London” if Brexit were passed. Did Wall Street fire more workers immediately?

 

Wall Street banks like to plan their actions out carefully, years in advance. Because, they had already started laying off workers, they could simply increase the numbers of laid off workers in London. “Goldman Sachs Chairman Lloyd Blankfein and Jes Staley, CEO of Barclays – which suffered the biggest one-day fall in its share price on record on Friday – said they would work with the authorities as the terms of the exit become clear.”

 

Wait and See!

Realistically, it will take years to fully resolve and understand the contours of Brexit. Financial experts have continued to argue that London could lose 100,000 financial service jobs after Brexit. And some of these fears might be realized.

But the truth is that Brexit was primarily about parochialism. Brits wanted to control their own future and not be slaves to Belgian European Union bureaucrats. Thus, one expert would argue that European Union jobs will simply be transformed into British jobs.

 

Serious Political Impact

The political impact is severe – its closest ally has rejected the Wall Street agenda. The year 2016 might also have other very serious repercussions: two powerhouses – Deutsche Bank and Credit Suisse – have been delisted. Italian banks are hemorrhaging with 17% non-performing loans. The top credit repair companies can help individuals struggling with high-debt.
The top Wall Street banks passed their July 2016 stress tests. Some Wall Street banks are likely to reduce headcount in London, but are assessing whether they should increase headcount in the EU to fill the High Street void. Power hates a vacuum, but there is no sense in throwing good money after bad.

Article written by

Kevin Faber has been in the commercial finance and banking industry for most of his professional life. He graduated at UC Davis with a B.A. in Business/Managerial Economics. His experience in credit analysis, finance, and management led him to be the founder of Silver Summit Capital. He enjoys working in the financing industry and building connections with industry leaders.

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