john finn brexit - cork - 30th june 2016
TRANSCRIPT
![Page 1: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/1.jpg)
EDUCATING
SUPPORTING
REPRESENTING
www.charteredaccountants.ie
BREXIT: where to from here?
John Finn
Treasury Solutions
![Page 2: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/2.jpg)
Content
1. The story so far….
2. Process of exiting
3. FX market trends
4. Wider business implications
5. Political implications
6. Opportunities
7. Summary.
![Page 3: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/3.jpg)
1. The story so far….
Leave Remain
Overall 52% 48%
England 53% 47%
London 40% 60%
Wales 53% 47%
Scotland 38% 62%
NI 44% 56%
![Page 4: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/4.jpg)
And the reaction….
![Page 5: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/5.jpg)
2. Process of exiting – legal nightmare
• 2 year process to exit from when they give notice under Article 50…
• But Cameron won’t be giving the notice... While Juncker wants them to give it as soon as possible.
• Legal changes required will be “monumental” according to large UK legal firm
• Impossible to undertake serious review of EU legislation prior to exit
• Could try a single Brexit Act but that is risky
• Some EU laws require reciprocation
• Others require EU approval to “passport”
• Plus some EU law has become case law having been tested in the Courts!
![Page 6: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/6.jpg)
3. FX Market Trends – EUR/GBP 10 year trend
![Page 7: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/7.jpg)
FX Market Trends – EUR/GBPJune 2016
![Page 8: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/8.jpg)
FX Market Trends – EUR/GBP
High to
Average
Index Jan-01
EUR/GBP High Low Low % Average 2000=100 close *1
2016 0.8307 0.7308 13.67% 0.7771 128 0.7351
2015 0.7874 0.6930 13.62% 0.7263 119 0.7758
2014 0.8400 0.7755 8.32% 0.8063 132 0.8292
2013 0.8747 0.8099 8.00% 0.8493 139 0.8103
2012 0.8505 0.7753 9.70% 0.8115 133 0.8336
2011 0.9042 0.8283 9.16% 0.8681 142 0.8533
2010 0.9148 0.8086 13.13% 0.8579 141 0.8952
2009 0.9649 0.8397 14.91% 0.8915 146 0.9551
2008 0.9803 0.7338 33.59% 0.7972 131
2007 0.7382 0.6553 12.65% 0.6845 112
2006 0.7006 0.6687 4.77% 0.6819 112
2005 0.7067 0.6624 6.69% 0.6839 112
2004 0.7093 0.6553 8.24% 0.6786 111
2003 0.7218 0.6480 11.39% 0.6920 114
2002 0.6529 0.6081 7.37% 0.6288 103
2001 0.6429 0.5967 7.74% 0.6220 102
2000 0.6389 0.5720 11.70% 0.6094 100
![Page 9: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/9.jpg)
FX Market Trends – EUR/GBP
GBP
Average
Rate EUR
Year-on-year €
profit effect
Cumulative €
profit change
Year-on-year
profit margin %
effect
2016 1,000,000 0.8500 1,176,471 (200,371) (970) -17.03%
2016 1,000,000 0.8000 1,250,000 (126,842) 72,560 -10.15%
2016 1,000,000 0.7772 1,286,726 (90,116) 109,285 -7.00%
2015 1,000,000 0.7263 1,376,842 136,608 199,401 9.92%
2014 1,000,000 0.8063 1,240,233 62,793 62,793 5.06%
2013 1,000,000 0.8493 1,177,440
![Page 10: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/10.jpg)
FX Market Trends - GBP/USD
![Page 11: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/11.jpg)
Other FX Implications
• Possible to hedge? Hedge with non-lenders?
• What hedging instruments can be used?
• How far forward can one hedge?
• Security implications of the provision of hedging lines?
• Mark-to-market issues?
• Breakeven FX rate for UK sales?
• Upgrade knowledge to understand other FX instruments.
![Page 12: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/12.jpg)
4. Wider Business Implications
• Sectoral exposure: (Hospitality, International transport)
• Increased exposure to cheaper UK imports in short-term
• Increased cost of GBP borrowing
• Pension Fund trustees – UK exposure management?
• Smaller exporters in general re FX management?
• Brain drain from here to UK in certain professions?
• Effect on your supplier base?
• NB. Effect of all of the above on banking agreements.
![Page 13: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/13.jpg)
5. Political Implications
• UK fragmentation (geographic, age, social demographics)
• Tory and Labour party leadership competitions. Snap election?
• Us in the EU without the UK?
• Us in the EU negotiations with the UK – we don’t want another bailout scenario. Big risk here?
We can’t sign bilaterals without EU approval
• North/South Border?
• Impact on other EU countries?
![Page 14: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/14.jpg)
6. Opportunities
• Attract more FDI in next 2 years
• Attract the hi-techs and start-ups (Cork opportunity?)
• Financial services opportunity?
• More UK company alliance opportunities
• Use this to rebalance geographic spread of business in the economy?
• Reach out to the Irish in business in the UK
• Opportunity to sell for mature businesses/owners?
![Page 15: John finn brexit - cork - 30th june 2016](https://reader033.vdocuments.us/reader033/viewer/2022042706/58a104a41a28abbf248b6df9/html5/thumbnails/15.jpg)
7. Summary
• FX continues to be short-term immediate risk area
• But could hit borrowing agreements quickly
• Tourism will be exposed from 2017 if GBP remains weak
• As we can’t sign bilaterals with UK, no “sweetheart deals”
• Impact on NI trade/border control?
• Start of EU fragmentation?
• Second referendum? Constitutional challenge?
• 20% chance we follow? Negotiations will be as important as bailout.