Broker-dealers and other financial firms felt the pain of the Brexit vote on Friday, falling as much as 17% over concerns such as rising global market volatility, slower economic growth worldwide and continued low interest rates.
Firms with large operations in London – such as Morgan Stanley (MS), Goldman Sachs (GS) and JPMorgan (JPM) – are expected to suffer from lower trading in the capital markets “as companies stop transacting due to uncertainty in law and markets,” analysts with Keefe Bruyette & Woods said in a recent report.
The impact on earnings in 2016 and 2017 for such firms could be substantial, the KBW group says. For instance, the Brexit vote may push Morgan Stanley’s earnings down 5.6% this year and 9% next year. Earnings at Bank of America (BAC) might take a 3.1% hit in 2016 and a 6.1% dip in 2017 due to the shift.
With Brexit, “We would also expect the British pound and euro to depreciate versus the dollar and this would cause [foreign exchange] headwinds for select companies,” the KBW analysts explained.
Morgan Stanley’s shares dropped about 10% on Friday, while Goldman Sachs and JPMorgan weakened 7%; their European counterparts had an even harder day, with Deutsche Bank (DB) dropping 17%, Credit Suisse (CS) 16% and UBS (UBS) 13%.
But at least one industry analyst sees a silver lining for U.S. banks in Friday’s mayhem.
“Buying bank stocks at this moment makes a great deal of sense,” said Richard Bove of Rafferty Capital Markets, in a report obtained by CNBC. “There is no basis for arguing that there will be a financial collapse in this country.”
On Friday, Morgan Stanley – which has some 5,000 employees in the United Kingdom – denied a report that it had begun moving 2,000 investment banking staffers out of London.