S&P said that UK banks’ earnings and balance sheets would provide a solid cushion against a disorderly Brexit. But the agency also said: “Their current ratings and/or outlooks may not prove to be consistent with a disruptive Brexit accompanied by a severe economic shock.”
Britain and the European Union are aiming to reach agreement on a divorce settlement in time for an EU summit next week.
S&P said that while it expects an orderly departure in March followed by a transition period to the end of 2020, some financial institutions have reached a point of no return and are setting up new hubs in the EU to avoid disruption.
Even with an orderly Brexit, there would be pressure on banks to shift euro-denominated clearing of transactions, such as derivatives, from London-listed LCH to the EU, S&P said.
Fitch Ratings, a rival ratings agency, said that UK banks are well funded to face a no-deal Brexit, but could face challenges if wholesale markets were disrupted for a lengthy period.
“Their ratings should be able to withstand economic deterioration in the no-deal scenarios,” Fitch said in a statement. [...]