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Calls for financial calm but companies must prepare for Brexit fallout

Statements from financial leaders seek to reassure financial markets that it's “business as usual” following Friday's shock exit vote. But views from banks and analysts tell a different story.

This morning, UK chancellor George Osborne said that the UK is ready to face the future "from a position of strength" and said there was no need for an “emergency Budget”. His words of reassurance echo the calming, parental tones of Bank of England governor Mark Carney on Friday.

All quiet on the Western front?

Financial regulators have also played down any impact of change – at least in the near future.

Payments UK said it's ‘business as usual’ after the referendum result. It added: “the referendum decision will need to be carefully considered by the industry from purely a payments perspective. Any changes ultimately required within the UK payments industry as a result of today’s decision will also need to be scheduled and prioritised into existing industry long-term strategic planning.”

Meanwhile the ECB issued a statement reassuring that it is “closely monitoring” financial markets, adding that it “has prepared for this contingency in close contact with the banks that it supervises and considers that the euro area banking system is resilient in terms of capital and liquidity.”

The Payment Systems Regulator acknowledged there would be change in the payments industry but underlined the continuation of the status quo for the foreseeable future: “We recognise this is an important decision and the changing relationship with the EU is likely to impact the payments industry. Current payments regulation deriving from the EU will remain applicable until any changes are made.”

UK faces €4.5bn losses

But voices from other corners are giving a very different perspective and the outlook – as shown by Moody's negative ratings move for the UK – is far from rosy. A report from consultancy William Garrity Associates says that Britain leaving the EU could cost the UK economy as much as €4.5 billion over the next five years. There are question marks over the long-term prospects of sterling and the euro. Corporate treasurers are being urged to put hedging programmes in place if they don't already have them.

Financial services and banking shake-up

As for the UK's financial services industry, much will depend on how negotiations with Europe pan out. However, the prospect of losing the so-called ‘passporting’ rights could see banks leave the UK, as the UK leaves the EU. Today it's being reported by the BBC that HSBC “would move up to 1,000 staff from London to Paris if the UK left the single market, following Britain's vote to leave the EU”. And Fortune writes: “the city that has long been considered the financial capital of Europe could lose as many as 40,000 workers in the wake of Brexit.”

Other banks reported to be considering their own UK-exit include Morgan Stanley, which said it would relocate as many as 1,000 workers, and JP Morgan, which said it is likely to move at least 1,000 people out of London. If this scenario plays out and banks really do start moving large swathes of employees out of London, corporate treasurers will certainly have to consider their position. Banking relationships will have to be re-evaluated.

Two-thirds of British directors say Brexit bad for business

In a further blow to the prospects of the UK economy, Britain's Institute of Directors (IoD) surveyed 1,000 of its members and found that a quarter planned to freeze recruitment as a result of Friday's vote results. It added that almost a third would keep hiring at the same pace, with 5 per cent planning to cut jobs. Almost two-thirds said the vote was negative for their business.

With data like this emerging, it's very hard to see how Osborne's words this morning can really have much weight. But the reality is that no one currently knows how things will develop. We must just sit tight and wait.

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