Brexit bombshell battered markets around the world on Friday. The FTSE 100 nosedived by around 8% after the opening, but has recovered in the last hours of trading. Shares of almost all of the Europe’s banks are crushed in what analysts call the biggest slump since the financial crisis, which has wiped billions off the market overnight. In the US, the Dow Jones Industrial Average has plunged by over 2% as investors fear economic reverberations of the surprising decision by the British voters.
Huge uncertainty looms large over the banking sector following the UK’s decision to leave the EU. Major European and US banks use the UK as a springboard for their services and operations across Europe. UK’s exit from the Union will result in cross-border transaction hindrances and new regulations, which could hurt the current financial infrastructure. Almost all the European banks were vehemently against Brexit. Deutsche Bank’s CEO John Cryan, commenting on the UK’s decision to part ways with the EU, said on Friday: “I’m afraid that this is not such a good day for Europe. At this stage, we cannot fully foresee the consequences, but there’s no doubt that they will be negative on all sides.”
Among the major banks, which are bearing the brunt of Brexit vote this morning are Royal Bank of Scotland Group PLC (NYSE:RBS), Barclays PLC (ADR) (NYSE:BCS), JPMorgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C) and Bank of America Corp (NYSE:BAC). Let’s take a closer look at these stocks and see what the funds in our database think about them.
Imitating hedge funds and other institutional investors can help identify some of the most profitable stocks on the market. However, our extensive research that covered the period between 1999 and 2012, showed that the best approach is to follow these investors into their small-cap stocks. Our backtests showed that the 15 most popular small-cap stocks among hedge funds managed to generate a monthly alpha of 81 basis points, versus an alpha of 0.7 percentage points posted by their top 50 large-cap picks (see more details here).
Royal Bank of Scotland’s Stock Crushed: Management Reassures Customers
Royal Bank of Scotland Group PLC (NYSE:RBS)’s stock has plunged by around 20%. The struggling bank whose shares have lost almost 50% in the last 12 months, recently announced plans to cut 900 jobs as part of its plan to reduce costs. The bank has cut over 2,500 jobs since January. In a statement, RBS said that the UK’s vote to leave EU will have no “immediate impact” on customers’ everyday banking services. A total of 10 funds from our database were long Royal Bank of Scotland Group PLC (NYSE:RBS) at the end of the first quarter. Jim Simons’ Renaissance Technologies owns approximately 1.24 million shares of the company.
Barclays Ready to Do “Whatever It Takes” after Brexit
Barclays PLC (ADR) (NYSE:BCS)’s stock has slid by nearly 22% so far today. Barclays Chief Executive Jes Staley said in a statement that the bank is ready to do “whatever it takes” to serve its clients. He said that Barclays is anchored in both the UK and the US and this is the core of its strength. Recently, Joseph Dickerson at Jefferies said that Barclays is one of the most vulnerable companies to Brexit as its share price is highly correlated with the volatility in sterling. Overall, 12 funds tracked by us held long positions in Barclays PLC (ADR) (NYSE:BCS) at the end of March, having amassed $275.4 million worth of stock. Ken Fisher’s Fisher Asset Management owns more than 21 million shares of the company as of March 31.
On the next page, we will discuss JPMorgan, CitiGroup and Bank of America.