Brexit - "T plus 7"

Seven days have passed since the UK referendum which resulted in a 52% majority for the UK to leave the EU. Whilst the immediate volatility in the markets seems to be subsiding, it is not clear whether the dust is yet settling, and even if it is we still can’t see what is on the horizon.

Businesses, especially those in the UK, are facing an unprecedented period of uncertainty. The ACT conducted a 'T-7' poll of its Treasurers’ Forum seven days before the referendum asking Treasurers what they were doing different at quarter end because of the Brexit referendum.

Of the 40% that were doing something different, increasing foreign exchange hedges and holding extra cash were the two main activities.

Read what they said here. Today, seven days after the referendum, the ACT have again polled the Treasurers’ forum this time asking: "What are the biggest Brexit concerns that you and your treasury team will be focusing on in the short term?" (defined as now, July 2016, through to year end).

Concern #1

Foreign exchange volatility and the weakness in exchange rates is by far the biggest concern of treasurers, with nearly half rating it their number one concern. This is not surprising given cable (GBP/USD) peaked at 1.5 a week ago and is now down to 1.32.

Concern #2

Increased counterparty risk of banks and financial counterparties featured as the second biggest concern, with half rating it in their top three concerns but the majority of these prioritising it as their number two issue.

Concern #3

The third biggest short term Brexit concern for treasurers is a close tie between availability of bank funding and committed facilities, the impact on trade and the movement in interest rates. These concerns highlighting the different financial risks and balance sheets structures of individual industries.

And the rest?

Other short term concerns which didn’t feature in the top three include: availability of funding in the capital markets; the impact on a corporate’s credit rating; where to invest any build up of cash; potential withholding tax issues; the disclosure of the Brexit impact to the markets; and the impact of Brexit on working capital. As the UK government formulates a plan, the uncertainty will dissipate and the economic picture may become clearer. It is never too late to start preparing and we would encourage all treasurers, if they haven’t already done so, to plan ahead based on multiple scenarios. The ACT will continue to poll members, and analyse developments now we are in Brexit mode.