Europe bank profits ‘may drop €32bn’ on Brexit, says Goldman Sachs

Brexit may shave €32bn off European bank earnings through 2018, a 11% decline from what profits would have been without the economic shock, according to Goldman Sachs Group.

UK banks will be hurt the most as the UK vote to leave the EU erases €10bn of potential net income, Goldman Sachs analysts said in a note to clients yesterday.

Banks in the Benelux and Nordic countries will suffer the least, they said. “We forecast a weaker outlook owing to lower volumes, margins and fees,” as well as higher credit risks, the group of analysts, led by Jernej Omahen, said in the note. 

“We also expect lower activity levels for capital markets and wholesale businesses, as well as lower asset values and flows in the asset-gathering business,” the analysts said.

Financial markets convulsed as the UK vote to exit the EU last week sparked turmoil across financial markets, and prompted analysts to downgrade European banks. 

Investors dumped sterling and equities and piled into safe-haven assets including gold and German bunds. 

In the eurozone, German banks will be the most affected due to their low-cost efficiency, the Goldman Sachs analysts said.

The Bloomberg Europe Banks and Financial Services Index — which measures the vale of banks across Europe — rose 3% yesterday after a two-day plunge of more than 20%.

In the UK, the Goldman Sachs analysts cut Barclays to neutral from buy, citing “heightened operational risk due to pass-porting,” the system that lets banks in EU member states service clients in all the trading bloc’s countries.

British challenger banks will be “particularly affected due to fast growth and operating leverage,” the analysts said, downgrading Shawbrook Group to neutral. 

Shawbrook fell 8%, the most among UK lenders, yesterday after saying it would probably take a £9m (€10.85m) charge this quarter because of improper lending.

Bank of Ireland shares rose 2c to 19c yesterday following its sharp slump since Thursday’s Brexit vote. 

The bank’s value has slumped in the past year by 50% to €5.95bn, valuing the Government’s 14% stake at €833m.

Additional reporting by Irish Examiner staff

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