EU referendum: Brexit could affect UK's role as global financial centre, warns S&P

The outcome of the referendum on Britain's membership of the European Union could have implications for the UK's position as a global financial centre, credit rating agency Standard & Poor's (S&P) said on Monday (14 March).

The US financial services firm warned domestically-focused bank could also be adversely affected if the referendum outcome reduces economic activity or asset prices, although it outlined its belief that UK banks' strengthened balance sheets will remain resilient amid the slowing global economy and turbulent markets.

"Eight of the 10 rated UK-headquartered banks and building societies currently have stable outlooks on their ratings," stated S&P's credit analyst Richard Barnes.

"The dominance of stable outlooks reflects our expectations of steady core operating earnings, gradual progress in deleveraging non-core assets and resolving legacy litigation, and further organic capital building."

The ratings agency added that, in the event of a Brexit, international banks could refocus their European businesses away from Britain, particularly if the UK was no longer part of the passporting arrangement - which allows credit institutions from EU countries to carry out their business in another member state without having to obtain an official authorisation from the relevant regulator.

The speculation that Eurozone authorities could force the repatriation of activities, such as clearing of euro-denominated securities transactions, much of which currently takes place in London was also expected to be cause for concern for the financial sector.

"A vote to leave would result in complex, prolonged negotiations with the EU over the terms of the UK's exit, with considerable uncertainty over the outcome," S&P said in a statement.

"Generally, we think 2015 may have been the cyclical low point for UK banks' credit losses. We do not expect material asset quality deterioration but the slower global economy will surely continue to affect corporate creditworthiness."

S&P's stance echoes concerns expressed by TheCityUK on 9 March. The financial advisor, which lobbies for Britain's financial services sector, was the latest group to back the 'Remain' campaign as it warned the competitiveness of the City of London's financial services industry would suffer in the event of a Brexit.

"I don't think we would see a huge movement of jobs immediately, but what would worry me greatly is that foreign direct investment doesn't arrive," said chief executive Chris Cummings.

Meanwhile, S&P went on to say the reported exposure of UK banks to the commodities sector was likely to be contained, adding 2016 could be the last year of major conduct and litigation charges, although banks do not have unilateral control over the timing of settlements and some could carry over into 2017.