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Brexit Hits U.S. Bank Stocks, Big Banks Reassure Investors

Following the trend around the globe, the U.S. bank stocks nose-dived on Friday, as the 'Brexit' vote triggered panic in the global financial markets.

Among major banks, shares of Morgan Stanley MS and Citigroup Inc. C witnessed the worst declines tanking 10.15% and 9.36%, respectively. While The Goldman Sachs Group, Inc. GS was down 7.07%, Bank of America Corp. BAC and JPMorgan Chase & Co. JPM recorded respective declines of 7.41% and 6.95%. However, Wells Fargo & Company WFC which is largely focused on the U.S., was down 4.59%.

The Brexit referendum gave rise to a flood of uncertainties, amid the already slow global economic growth. Foreign banks that use the U.K.as the gateway to the European market must rethink their strategy and at the same time gear up for the potential changes in their organizational structures stemming from the new rules and regulations.

Large investment banks need to deal with several operational challenges including currency volatility and uncertainties hovering around trading and deal making. Separately, for employees of these organizations, continuation of service remains threatened post Brexit.

However, with the response of several Wall Street banking giants on Brexit, investors' negative sentiment should get eased to some extent.

Morgan Stanley stated, "The UK's vote to leave the European Union is a very significant decision which will have a considerable impact, the extent of which will not be known for some time. There will be at least a period of two years before an actual exit takes place, so there will be time to implement any changes required to adjust our business to the new environment. We will continue to monitor developments very closely and will adapt accordingly while prioritising the interests of our clients, our shareholders and our employees."

In an internal memo to employees, Jamie Dimon, CEO of JPMorgan noted, "J.P. Morgan has 16,000 employees in the U.K. We are extremely proud of the work they do and our long history in the country. Regardless of today's outcome, we will maintain a large presence in London, Bournemouth and Scotland, serving local clients as we have for more than 150 years."

Dimon also stated that in the upcoming months it may pursue changes in the European legal entity structure and the location of some roles, adding, "We are hopeful that policymakers will recognize the immense value created through a continued open economic engagement between the U.K. and EU members."

Citigroup CEO Michael Corbat said, "The UK is unlikely to formally exit the EU for at least two years, and during this period there will be no change in the way Citi is able to conduct its business. Last year, we created a group of senior leaders from across our businesses and functions to ensure we were prepared for this possible outcome. While the result of the vote is not what we would have preferred, our diligent work over the past six months means we can be confident that Citi is well positioned to continue to serve our clients." Corbat also stated that there is no immediate effect on the terms of employment for EU nationals currently employed in the U.K. and UK nationals working in the EU.

Goldman's CEO Lloyd Blankfein stated, "We respect the decision of the British electorate and have been focused on planning for either referendum outcome for many months. Goldman Sachs has a long history of adapting to change, and we will work with relevant authorities as the terms of the exit become clear. Our primary focus, as always, remains serving our clients' needs."

Bottom Line

While several banks and financial firms have strategic plans, we believe the major focus for the banks now will be tied with the regulatory and legal environment post Brexit which depends on the nature of the transitional arrangements agreed upon, following the referendum.

Amid several macro challenges, Brexit added to the global growth concerns which may result in further delay in rate hikes, making it tough for banks to drive revenues. However, on the brighter side, the Federal Reserve released the Dodd-Frank Act supervisory stress test 2016 (DFAST 2016) results on Thursday, which reflected the continued stability in the banking system despite the Fed's harsher hypothetical "severely adverse" scenario this time.

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JPMORGAN CHASE (JPM): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

BANK OF AMER CP (BAC): Free Stock Analysis Report

MORGAN STANLEY (MS): Free Stock Analysis Report

GOLDMAN SACHS (GS): Free Stock Analysis Report

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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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