Britain’s decision to quit the European Union last month is a bit like a vague black hole, but still investor relations departments from across the United States are signing off company earnings reports and taking questions from analysts who want to know how “Brexit” will affect them.
We have had 130 companies in the market bellwether S&P 500 report second quarter results so far, and the word Brexit has been used no less than 214 times on calls, according to FactSet data.
That is around twice per company.
If the inventor of the term “Brexit – the exit of Britain from the EU – could have slapped a royalty on the term he would be a rich individual.
While as far back as 2012 “Brixit” was in use, Brexit gained popularity after “Grexit” became parlance for Greece’s unceremonial exit from the Euro zone currency bloc. Grexit didn’t happen but Brexit did.
There is a long way to go before we actually know what Brexit means for the UK, and Article 50 of the Treaty of Lisbon has to be invoked first. The new British Prime Minister Theresa May is in no hurry to invoke it as much planning lies ahead before trade talks begin with other European leaders. Those talks could last years – although Britain’s exit from the EU would have to be completed by two years of triggering Article 50.
So what analysts have been asking US executives to comment on, well, isn’t all that helpful. If their British counterparts are unclear about the way ahead, spare a thought for US commerce chieftains who are an ocean removed.
Even as today Purchasing Managers Index data from research firm Markit recorded the biggest slump since 2009 for services and the poorest show for manufacturing since 2013, it is still way too early to predict how corporate Britain will endure. There will anyway be winners and losers, and that is also true for American counterparts.
Most of the US conference call chatter has been focused around the fall of sterling against the greenback. For US exporters this isn’t good news. Cable is a lifeline to many businesses and the relative ascent of the dollar – thanks to recent hawkish messages from the Federal Reserve on interest rates plus the Bank of England talking down the outlook for the UK economy, have taken their toll with the pound worth just $1.31 on Friday.
A few sectors are likely to universally do badly post-Brexit. Banks are one of them. British institutions are dreading that thousands of UK jobs might be lost in the financial services sector, not least because some banks are considering expensive and idealistic transfers of their operations out of London – the world’s capital of foreign exchange trading – into mainland European sites like Frankfurt in Germany or the French capital Paris.
JP Morgan Chase (NYSE:JPM) is believed to be in an advanced stage of preparation for quitting Britain for mainland Europe. A recent survey by Keefe, Bruyette and Woods highlighted that 4,000 US jobs could be on the line at JPM’s European operations. Citigroup (NYSE:C) comes next with 2,000, Goldman Sachs (NYSE:GS) third with 1,600, Bank of America (NYSE:BAC) 1,400 and Morgan Stanley (NYSE:MS) 1,250.
It is easy to get depressed reporting all those companies who will probably have an as-yet-unquantified negative impact from Brexit. But there are already some businesses who have noted positive results of the Brexit vote. Among them is online retailer and auctioneer eBay Inc (NASDAQ:EBAY).
Reporting better-than-expected second quarter results on Wednesday, eBay said it had noted a slight boost in the company’s United Kingdom business as a result of the currency swings from Brexit. That trend was expected to continue.
Meanwhile, on Monday IBM Corp (NYSE:IBM) was asked after it reported its second-quarter earnings about any impact Brexit had on its EMEA operations. IBM Chief Financial Officer Martin Schroeter said “we don’t see an impact, if you will, that has any real materiality on us.”
Whether a company’s disposition is to believe that Brexit will be bad or good for business, it is best to be vague about the effects of Brexit until we know what it actually will mean for Britain and from that start to piece together the impact on business in the UK, the US and beyond.