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BREXIT: where to from here?

John Finn

Treasury Solutions

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.

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%

And the reaction….

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!

3. FX Market Trends – EUR/GBP 10 year trend

FX Market Trends – EUR/GBPJune 2016

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

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

FX Market Trends - GBP/USD

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.

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.

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?

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?

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.

Email: johnfinn@treasurysolutions.ie

Website: www.treasurysolutions.ie