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Bank of America Has More Brexit Exposure Than You Might Think

B Of A Uk Exposure
B Of A Uk Exposure

Data source: Company regulatory filings.

Beyond the sheer size of Bank of America's U.K. country exposure, it's shocking to me that its U.K. exposure is greater than JPMorgan's. JPMorgan has 11% more assets than B of A. Regulators place JPMorgan two "buckets" higher than Bank of America on the list of global systemically important financial institutions.

JPMorgan's combined exposure to France and Germany is 2.3 times greater than B of A. For the 12 months ending in February, JPMorgan's investment bank generated $1.1 billion more revenue than Bank of America Merrill Lynch, beating it by 24%.

JPMorgan is the quintessential global bank, and Bank of America is, well, Bank of America .

Bank of America's exposure, as well as Morgan Stanley's and JPMorgan's, goes beyond the financial risk

In addition to the financial exposure to the Brexit, Bank of America also has operational challenges that must be addressed. As part of the regulatory framework of the EU, international banks in the U.S. typically operate subsidiaries in the U.K. specially designed to give them access to the broader eurozone markets. In this way, one subsidiary grants the bank access to the whole of the EU.

Bank of America is no different, using its U.K.-based broker-dealer subsidiary, Merrill Lynch International, as its ticket into the eurozone markets. With the U.K. now exiting the EU, that structure will likely have to change. To access the EU markets sans the U.K., these banks will probably have to set up new subsidiaries based in another EU financial center, while still maintaining London operations to serve their British clients. That will add costs, complexity, and more regulatory hurdles to overcome.

More than 1,300 British Bank of America employees, about 25% of the bank's workforce in that country, may have to be relocated, according to an estimate from investment bank Keefe, Bruyette & Woods. Morgan Stanley has reportedly started moving more than 2,000 jobs away from its London office already.

It's impossible to know how the Brexit vote will ultimately impact economies and geopolitics down the road. Investors should, however, take the time to understand the risks facing their investments in this region. For Bank of America investors, that exposure is likely more than you thought.

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Jay Jenkins has no position in any stocks mentioned. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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