Rating agency’s report shows that if Britain leaves single market as well as EU, loss of business would be less serious than some predictions

Fears that the UK would see a mass exodus of banks in the event of a “hard Brexit” have been downplayed by one of the world’s three big rating agencies in a report that says the impact on the City would be modest and manageable.

An analysis by Moody’s said there would be a loss of business if the referendum result leads to Britain leaving the single market as well as the EU, but the impact would be less serious than some experts have suggested.



The report was published as Theresa May met the leaders of US multinationals – including Wall Street firms with major UK operations such as Goldman Sachs and Morgan Stanley – in an attempt to assuage their anxieties over the impact of the 23 June vote on their businesses.

The future of the financial sector will be vital in the Brexit negotiations, with the government eager to prevent multinational banks from leaving for other EU destinations.

Since the vote, there have been concerns that a departure from the single market will result in the loss of passporting rights – the array of permissions granted to London-based banks and other financial companies, which allow them to operate across the EU and the wider European Economic Area (EEA).

Jens Weidmann, the president of the Bundesbank, said in a Guardian interview that without passporting rights London’s position as a financial centre would be jeopardised.

But Moody’s said the direct impact on the banks and financial services companies for which it provided ratings was “likely to be modest”.

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It added: “The greater impact would be felt through higher costs and diversion of management attention, as the companies concerned restructure, reducing profitability for a time. This is credit negative but manageable. And other critical factors such as capital and liquidity, which are largely determined by global standards, are unlikely to face material changes due to Brexit per se.”

Moody’s said it thought it unlikely that all permissions granted to financial firms would be lost. Even without a formal arrangement, EU law already provides for limited recognition of non-EU regulatory regimes for the purpose of undertaking investment and banking business, it said.

Simon Ainsworth, the senior vice-president at Moody’s, said a scheme to harmonise regulations across the EU could provide an alternative way to access the single market.

“The complexity of (quickly) unwinding the status quo and a desire to minimise the initial impact on European domiciled banks will likely lead to the preservation of most cross-border rights to undertake business,” said Ainsworth.

Moody’s added that there would be less certainty for firms as access would depend on a judgment by the European commission, which might take time to make and could be withdrawn later.

Ainsworth said: “While banks that use the UK as an entry point for most EU operations should not suffer materially altered credit fundamentals if they lost their EU passports, the uncertainty around the outcome of any new arrangements mean that it is likely that some banks may choose to move some UK-based activities to the EU before the UK’s withdrawal negotiations are complete.”



Mark Boleat, the policy chairman at the City of London Corporation, said: “Passporting is still a crucial issue for financial services firms and the uncertainty is causing real problems for some businesses. What exactly its loss would be depends on both the sector and business model of any company.

“In the City many firms are still analysing what impact the loss of passporting will have on them. For some retail banks it is of almost no real importance. But for the whole of international investment banking and an institution such as Lloyds of London it is an absolute necessity. We are making this point clear to policymakers in our ongoing discussions.”

Weidmann said the “hard Brexit” option would lead to banks being automatically stripped of their ability to conduct business across the EU and open the door for Frankfurt to take business away from London.

He emphasised that banking “passporting rights are tied to the single market and would automatically cease to apply if Great Britain is no longer at least part of the EEA” .

