Brexit Could Have Biggest Impact on Universal Banks - KBW (C) (BAC) (JPM) (WFC) (GS) (MS)

The biggest impact of Brexit could be on universal banks and exchanges, Keefe, Bruyette & Woods said. Overall, KBW would classify U.S. Universal Banks and Exchanges & Order Execution Firms as having the greatest risk to earnings should Brexit occur and estimates 2017 earnings estimates could change anywhere from +2.4% (LSE.LN) to -21.7% (ENX.FP), all else equal. The change in Universal Banks' EPS would be negative as well and we estimate the impact could range from roughly -1% (BK) to -9% (MS), all else equal.

• In KBW’s view, a UK vote to leave the EU would be a negative for the U.S. Universal Banks since costs could increase and capital markets activity could weaken. Banks may have a two-year transition period and we’d expect the banks to experience both revenue and expense headwinds during the transition. However, longer term we’d expect the impact of Brexit to be a wash for U.S. Universal Banks.
• KBW believes Brexit would be the worst-case scenario for stocks and companies with EU/UK exposure since a Brexit could lead to contagion fears and slowing growth—neither are generally good for stock performance or earnings.
• The UK is an integral location for U.S. Universal Banks and they generate a significant amount of income there. Overall, KBW views JPM and GS as most exposed to the potential negative fallout surrounding Brexit due to the relatively large amount of income each company generates from UK entities. Conversely, KBW views Citigroup and Trust and Custody banks (BK, STT, and NTRS) as being less impacted since operations in the UK are smaller relative to the company as a whole.

Related Stocks:

• Bank of America (NYSE: BAC)
• Bank of New York (NYSE: BK)
• Citigroup (NYSE: C)
• Goldman Sachs (NYSE: GS)
• JPMorgan (NYSE: JPM)
• Morgan Stanley (NYSE: MS)
• Northern Trust (NASDAQ: NTRS)
• State Street (NYSE: STT)
• Wells Fargo (NYSE: WFC)
• Financial Select Sector SPDR ETF (NYSE: XLF)
  

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