European Companies Seeking Ways to Protect Their Businesses from Brexit Fallout

European companies are worried that the U.K.’s exit from the EU will harm their businesses and are looking for ways to insulate themselves from Brexit’s possible negative consequences, according to a new study from Greenwich Associates.

More than a third of large European companies interviewed by Greenwich Associates as part of a most recent Post-Brexit study expect the short-term impact of Brexit to be negative or very negative.

Their long-term outlook is even more worrying: 45% of continental corporates believe Brexit will have a negative or very negative long-term impact, and almost 30% of their U.K. counterparts share this pessimistic long-term view.

These findings, which were released today in a Greenwich Report, The Post-Brexit Hangover, reveal that sentiment has shifted significantly to the negative since the U.K. referendum in June.

In a similar study conducted by Greenwich Associates prior to the vote, a small minority of 10% (net) of U.K. corporates still believed an exit will be positive for U.K. trade, while more than 25% of corporates on the continent already anticipated a negative effect.

Protecting Business

These fears are prompting companies to seek out ways to protect their businesses. In particular, corporates are rethinking hedging strategies, with 49% of large U.K. corporates interviewed and nearly 1 in 3 companies on the continent having revisited their FX/IR hedging strategies since the vote.

Study participants cite FX exposure as the No. 1 short-term topic on which they are seeking external guidance. Next to hedging, corporates are focused on cash management—especially on the continent, where the Brexit vote has already triggered 13% of study participants to review their lists of U.K./Europe cash management providers.

“While the politicians are still debating what actually occurred in June and what the result means for the future, business leaders do not have the luxury to wait and see,” says Greenwich Associates Managing Director Dr. Tobias Miarka and author of the new report.   “They are directly exposed to the effects of the Brexit vote from day one, with no opportunity to hide.”

Brexit Puts Corporate “Money in Motion” Among Banks

Since the vote, one of the first concrete steps taken by many companies in the study has been to shift banking business among providers. Close to 40% of continental companies and nearly 25% of U.K. companies in the study have already or are planning to reallocate their banking business due to Brexit.

U.K. banks are suffering most as 28% (net) of corporates domiciled on the continent say they plan to reduce their business with U.K. banks.  EU (non-U.K.) regional and local banks can expect a slight increase from U.K. corporates, 14% (net) of which are planning to expand their business with these banks.

“Since the vote, the biggest winners are the global banks, with 20% of continental corporates planning to increase business with these banks and U.K. corporates staying net neutral,” says Tobias Miarka.

 

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