Banks hit the headlines for all the wrong reasons in 2008 as some of their practices got them in to very hot water and they crashed the whole global economy.
A decade on, a raft of regulations has made the ones that survived clean up their acts, but with an economic shock – this time not of their own making – potentially on the cards, should you buy their shares? Brexit, whether achieved with a deal or not, is a huge deal for banks in the UK.
While most people know them as high street regulars that hold your savings, lend you money or issue contactless debit cards, they do an awful lot more. Retail customers are important to the banks, but it is the large international business and trading customers that make them their money.
HSBC, one of the UK’s largest banks, earns 75% of its revenues internationally. In 2017, more than half of its revenues were earned from commercial clients and trading activity. Barclays, RBS and Lloyds, which are also listed on the London Stock Exchange (LSE), have similarly huge operations and a massive global workforce outside the UK.
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Why Brexit matters for UK banks is that London is the world’s second most important financial city. Every pound, euro, dollar or yen is held, processed or lent out by a bank — and there are millions of international transactions taking place every day. London is the hub for these transactions in Europe. Should the UK crash out without a deal, partners from financial hubs including New York, Hong Kong and Singapore would need another place to connect with the 27 countries remaining in the bloc.
Given the uncertainty around the Brexit outcome, many international banks that had made London their home have sent thousands of workers across the Channel and Irish Sea. They cannot risk not being able to operate should the UK leave without a deal.However, many UK banks have done the same, and this should mean they can continue to operate in Europe and with international partners, whatever happens.
While it has no doubt been a costly hassle to move these people and operations, these international and business activities the banks rely so heavily on might make their stocks worth holding if Brexit becomes disorderly – without it resulting in another financial crisis.
Check out live prices on British banking stocks now. What’s more, eToro will absorb the cost of stamp duty on UK stocks.
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