UK Edition
Barclays is most exposed to Brexit turmoil, warn analysts
Barclays is the British bank most exposed to the referendum on the UK’s membership of the EU, as its international operations will be hit the most by Brexit according to analysts.
Joseph Dickerson at Jefferies notes that Barclays share price is highly correlated with moves in sterling, which explain 80pc of the stock’s moves over the past 18 months.
Given sterling is expected to fall sharply is the UK does leave the EU, so might Barclays’ stock.
“Barclays could have the highest direct functional impact as a result of a leave as a result of its exposure to investment banking and corporate banking,” said Mr Dickerson.
“Whereas Lloyds would face a second-order impact. Two-thirds of its balance sheet is mortgages, there is more of an indirect consequence, after, say, unemployment has been impacted and the overall economy is impacted.”
However Mr Dickerson expects voters to choose to remain in the EU and so suggests investors buy Barclays as a stock which will rise on such as result.
If investors are looking for a more defensive stock to protect their funds in the event of a leave vote, he said Standard Chartered could be an option as it has almost no UK operations despite being based in the UK.
Shares in Barclays fell 2.51pc on the day, while shares in Lloyds were down 4.21pc.
“The whole bank sector is down a lot across Europe. It is Brexit worries, it is capital concerns – Unicredit [in Italy] is down 56pc on the year on capital concerns,” he said.
Barclays declined to comment.
Economist Holger Schmieding at Berenberg Bank agrees with Jefferies that there is unlikely to be a Brexit.
He does, though, warn that events may shift the polls, which currently have a modest majority for the leave campaign, firmly into Brexit territory.
“So far, no big ‘event risk’ such as a major new terror attack, has happened in Europe – every day that passes is a small positive. Likewise, the migrant crisis is less of an issue than it once was as Turkey continues to honour the deal with the EU and border closures within Europe are deterring some would-be migrants,” he said, adding that the calming of the Greek debt crisis will also help the remain campaign.
“However, the threat of expulsion of England from the European Championships after the riots between Russian and English fans in Marseille, and some apparently less-than-optimal policing, may add to the anti-European resentment by some UK voters.”