EU referendum: Brexit could have a drastic impact on UK banking sector says Investec

A pro-Brexit vote at the European Union (EU) referendum, would be distinctly negative for the sterling because of its potential to impact the economy and international trade, the chief of one of Britain's main asset management groups said on Tuesday (1 March).

John Wyn-Evans, the head of investment strategy at Investec Wealth & Investment, said should Britain vote in favour of leaving the EU at the 23 June referendum, the pound could suffer a sharp decline, which would in turn see UK-based investors hedge their risks by taking money out of the country.

Several high-profile investment banks have suggested that the pound could lose between 10 and 15% of its value in the event of Brexit, based on experience during the financial crisis of 2008.

On 29 February, UBS, which put the chances of a Brexit at 40%, warned the pound could fall to parity with the euro if Britain exits the EU, while earlier last month HSBC said Britain's economy could suffer a drop of 1.5% in 2016 and the pound could fall by up to 15%.

Wyn-Evans said the warnings issued by investment banks were "too high a risk to ignore", although he quelled fears over a major economic crisis.

"A full-blown crisis is unlikely to be on the cards," he said.

"The fiscal position is improving and the country is solvent. There is also a self-correcting mechanism built into a falling pound in that the trade balance will improve and income from overseas assets will also be boosted in sterling terms."

However, a Brexit would have a drastic impact on Britain's banking sector, which is already under pressure from several angles and could face losing access to European markets.

"A major concern is the threat of loss of access to European markets, something which is currently permitted via passporting rights," said Wyn-Evans

"It is probable that banks would have to apply for new licences to operate on the continent, which would reduce the attraction for international banks to base their European operations in London. Any reduction in banking activity would have severe knock-on effects for London – both the economy and the real estate market."

A number of business leaders have warned against leaving the 28-country bloc, but the head of investment strategy at Investec Wealth & Investment said some smaller sectors could actually benefit from Brexit.

"Travel and leisure companies with greater exposure to the UK would see more in-bound tourism with overseas travellers attracted by a cheaper pound," he said.

"UK holidaymakers would also be more inclined to stay at home. Testing companies could prosper if the UK abandons the current EU accreditation system and reintroduces a separate British standard."

Ultimately, however, the uncertainty surrounding Britain's future is expected to see investors demand a higher risk premium until the outcome becomes clearer, which could see UK assets under-perform against their overseas counterparts in the short-term future.

The volatility that is forecast to take hold in the markets in the lead up to the referendum, and possibly afterwards should the 'leave' campaign succeed, will only be put to bed if UK voters choose to vote 'remain' in June, Investec added.

"A vote to leave will involve new trade agreements, not only with the EU, but also with other trading partners, the latter of which could take several years to complete," Wyn-Evans said.

"Other separatist movements, for example, in Scotland and Catalonia, might have the potential to create further disruption. The uncertainty will only end if voters choose to stay."