Australian insurer, QBE has become one of the first companies around to world to recognise that the Brexit vote last week could impact its UK and EU operations.
In a statement to the ASX yesterday, QBE said: "The referendum outcome may require a revised approach in relation to approximately GBP500 million of insurance and reinsurance premium that QBE currently sources from EU member countries that is written via branches of UK regulated entities under current EU passporting rules.
"Should EU passporting rules not be preserved, QBE will be required to renew this business into newly established licensed EU entities.
"The exit transition timetable is expected to take a minimum of two years. This period provides ample time for any requisite administrative transition and to ensure our service commitments to QBE’s European customers are uninterrupted. Thus our ability to source business from EU member countries remains unchanged.
"Accordingly, QBE does not anticipate any material impact on our day to day insurance operations as a result of the UK’s decision to leave the EU.” In fact QBE is the first major financial group to go on the record as recognising the Brexit vote will force it to change the way it does business in the UK and the EU.
The “EU passporting” regime allows banks and other financial companies, such as insurers to operate across the entire EU with one licence and set of rules.
Now that Britain is leaving, it will either have to negotiate an extension of this arrangement (which would require the company to abide by all EU rules and the free movement of people, two key reasons for the Brexit vote).
QBE is now saying it will have to negotiate a new passport for the smaller EU across all remaining countries, or relocate to Ireland, Germany or France or Holland and negotiate a new single region arrangement.
QBE shares fell more than 6% yesterday to $10.23 after a similar fall on Friday.
Many major US and EU banks are in a similar position, as are some big fund managers and global insurers (Allianz of Germany for example, Goldman Sachs, JPMorgan).
But Bank of America Merrill Lynch have analysts pointed to other concerns for QBE, downgrading the stock to underperform citing macroeconomic headwinds for the UK economy.
And Credit Suisse sees a rising threat to QBE’s earnings from any fall in bond yields triggered by the Brexit decision and uncertainty.
Meanwhile, Australian analysts have cut their earnings forecasts for other ASX-listed stocks with exposures to the UK.
Clydesdale Bank, the UK bank only recently spun out of National Australia Bank, lost 17% on the ASX on Friday, and yesterday lost another 9% and closed at $3.75.
The bank has said the vote to leave the EU will have no immediate impact and it is working policy makers and regulators to manage consequences.
But JPMorgan downgraded Clydesdale to “underperform” yesterday. And shares in Henderson Group (the UK fund manager part of the old AMP) also continued to slump.
Henderson shares fell nearly 16% yesterday (after a 12% slump on Friday) to $3.84.
Equities manager BT Investment Management was also sharply lower, trading at $7.82, down 10.2%, after losing 14% on Friday. Computershare, dropped 6.6% to $9.24 on its British exposure.
The selling in the big Australian big banks faded. ANZ Banking Group lost 0.7% to $23.27, National Australia Bank fell 0.4% to $24.51, but Commonwealth Bank of Australia rose 0.3% to $72.80 and Westpac Banking Corporation ended 0.1% at $28.38. That’s better than the 3.3% to 4.4% falls seen on Friday.
