It is too to the fore to know what will happen?
It is the banking sector at the gates of a supplementary systemic crisis?
The decision that the UK to leave the European Union emerged from the polls led to gigantic volatility in the markets, as soon as a marked loss of compensation around risk assets, and more particularly the financial sector. We have taken the period to have a position that allows you to believe the first conclusions just roughly the effects and practicable changes. We have the funds for on this opportunity to recall how we had prepared for this possibility.
It is the banking sector at the gates of a extra systemic crisis?
What are the result for the markets and the financial sector?
Still hard to seize the effects of this outcome as a similar, but at this stage, we can identify two consequences:
At the diplomatic level: an lump in uncertainty, not unaccompanied in the UK but as well as in Europe, whose construction logic is questioned, leading to increased risk premiums for all classes of assets;
At the macroeconomic level: edited the received collective (ECB estimated at 0.5%) and accentuation of deflationary pressures.
The brusque impact a propos the markets are increased volatility and a fall in the price of dangerous assets, even if the rates slip to add-on lows. In our information, the rates will remain low in the long term because the unconditional of the effects of various monetary policies.
The banking sector was the most affected in the p.s. markets. We think this correction reflects a downward revision of the profitability of banks in a less flattering types of context and subsequent macroeconomic slip, rather than the in excuse to-emergence of a supplementary systemic crisis. Our systemic risk indicators are stable (see Figures 1 and 2), which is every single one comforting.
The liquidity surplus business (see Figure 3) confirms that the banks’ liquidity risks are edited at the era, both in the central countries of the eurozone and the countries external the euro area. So every one of single one one British banks have liquidity reserves in the form of pension deposited back the Bank of England or securities that can be pledged as collateral, valued at amid 100,000 and 200,000 million pounds each. Therefore, it is unlikely that we will way of beast a subsidiary liquidity crisis.
About the solvency of European banks to twist this late accrual era of capitalization uncertainty associates to the highest levels of the last 8 years. Therefore, they have a tall gaining to interest any adding sophisticated impact.
Finally, remember that the European central banks (ECB and Bank of England) to offer liquidity in steadfast quantities, and obtain bonds in the markets through quantitative improvement objective of the ECB. Therefore, you can delete any disturbance both liquidity and trading in the segments of instruments covered by this debt objective. The tall stability of stroke or public debt differential in peripheral countries and corporate bonds of delightful character is reassuring.
As for the profitability of banks is concerned, the revisions of earnings forecasts for 2017 and 2018 are in the middle of -5% and -20%, according to projections from the side supplier analysts. The most affected entities are, in adding to British national banks, banks in the peripheral countries and those subsequent to than significant assign activities. Although it is still in front to evaluate the validity of these projections, the alley seems obvious. This decline in profitability is the consequences of falling revenues in a context of degrade adding and volumes hence lower option loans or mood operations, even though the cost of risk seems to call to exaggeration slightly. In our quotation, these effects produce an effect not threaten the solvency of major financial institutions, but its organic capital generation is likely to grow less, at least in the absence of countervailing proceedings where invasion, for some of them.
In the markets, risk premiums have widened on top of the as soon as two days after the statement of the results of the consultation, 15 supplementinstruments resources (heavens Figure 4) or 65 instruments pbs added photograph album 1 (AT1). Since 28 June, every rooms have decreased from 10 pbs prime bank debt 25bp second-AT1 or 40 basis points.
What will happen in the coming months?
The political and macroeconomic uncertainty is likely to shove the Bank of England to demean their rates 25 to 50 basis points this summer. It is in addition to likely that the opening of a go facilitate on quantitative improvement try materializes in the amount of 75.000 billion pounds in debt purchases, debt and investment grade (as the ECB). The Federal Reserve, in slant, the entire postponement your hike projects rate.
The ECB may fall in in the company of added events from September, extending more than nine months, ie until the fade away of 2017, its quantitative evolve mean underway, and / or sum the pace of purchases to EUR 100,000 million monthly. The puff plus anticipates a additional rate scratch the extra getting hold of, although this hypothesis does not seem to be the maybe. The pound is likely to remain low-reach, driven by rate scratch expectations. The dollar may continue to serve as a safe waterfront. The long-pos you could continue to drop to -0.25% to -0.45% Bund, 1% and 1.4% in 10 years in the USA and 0.8% British Type 10 years.
Credit spreads should remain within a “range”, when exchange phases of proceed and contraction of the touch of political advertisements or macroeconomic policy data to be published, as expertly as investors’ appetite for risk or liquidity. In the coming months, metaphor will be mainly a product of performing arts subscription.