Moody's expects lenders with operations in the U.K. to facemoderate short-term risks in the run-up to the June 23 referendum on EUmembership, with a potential vote to leave presenting "more durable butmoderate challenges."
Short-term risks ahead of the vote include a rise inwholesale funding costs and more muted credit growth, especially if pollssuggest a close vote. The agency said wholesale funding spreads were 30 basispoints wider at the end of the first quarter compared to the start of the year,with the average CDS premium for large U.K. banks reaching 57 basis points,compared to 35 basis points for European peers.
Should the U.K. vote to leave the EU, Moody's said low creditgrowth would "likely be extended and exacerbated … with a subsequentmoderate negative impact on the profitability of some U.K. commercial banks.Retail lenders would likely be less affected, Moody's said, because householdswould take longer to feel the negative effects of slower growth.
Lenders with cross-border exposure could face a moderateincrease in costs, the agency added. European and global investment banks withLondon as their capital markets hub are likely to face additional costs ifrequired to establish units or move staff, pushing them to shrink their U.K.operations, Moody's noted.