Deutsche Bank has warned UK banks to brace for long-lasting volatility after Britain voted to leave the European Union, plunging the country into financial and political turmoil. On Monday (27 June 2016), trading in the Royal Bank of Scotland was temporarily halted after shares in the lender plunged by 14.2%, while Barclays shares, which were twice halted from trading on Friday, were also automatically stopped from trading after slumping by 11.5%.
Analysts at Deutsche Bank indicated the political and financial uncertainty pointed towards extended volatility in the upcoming months.
"With political and economic uncertainty likely to be here to stay, we expect the coming weeks and months will see significant volatility in the share prices of UK financials and those with UK operations," the German lender said. "Our base case is that there will be further monetary easing – negative for margins – lower loan growth and that loan losses will trend upwards, [while] dividends [and] capital return is at greater risk or likely to be pushed back. We also see heightened probability of management change, particularly at Lloyds."
However, economists at Deutsche Bank stressed the landscape for the UK banking sector was not as gloomy as in the lead up to the financial crisis in 2008. British banks were, in fact, in a much better position than eight years ago, the lender added.
"Whilst we have included higher loan losses, our forecasts do not assume a recession [or] financial crisis. In fact, UK banks are in a far better position in 2016 to withstand a downturn today than in 2008: capital levels and quality is higher, and key exposures are lower."