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Large US banks have high exposure to UK

July 06,2016 14:12

U.S. bank stocks initially dropped sharply following the surprise outcome of the June 23 vote. The Financial select sector SPDR exchange-traded fund fell 8.1% in two days after the Brexit referendum amid concerns about their U.K. exposure. But since ...

Major U.S. banks have high financial exposure to the United Kingdom, and could face increased risk on loans and deposits at their branches there as the result of last month's Brexit vote, according to recent report.Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM) and Bank of America (BAC) top the list of U.S. banks in a S&P Global Market Intelligence report on select U.S. banks with exposure to the U.K. market.The estimated financial exposure for the top five banks ranged from $118.9 billion for Citigroup  and $103.9 billion for Goldman Sachs, to $79.2 billion for Morgan Stanley, $72.1 billion for JPMorgan and nearly $70.2 billion for Bank of America.U.S. bank stocks initially dropped sharply following the surprise outcome of the June 23 vote. The Financial select sector SPDR exchange-traded fund fell 8.1% in two days after the Brexit referendum amid concerns about their U.K. exposure. But since then the bank stocks have halved their losses as worries ebbed.However, the British pound this week declined anew against the U.S. dollar, posing another potential financial challenge for banks.The exposure data in the June 28 S&P report are drawn from the banks' Federal Financial Institutions Examination Council reports as of Dec. 31 2015. The reports include a variety of claims,  including deposit balances, securities, federal funds sold and loans, along with other types of holdings.Additionally, the exposure is categorized by various types of borrowers, including banks, public sector entities, such as government agencies and central banks, non-bank financial institutions, insurance firms and pension funds, as well as corporate or household counterparties.The bank's high U.K. exposure "doesn't necessarily mean they will see losses on their loans or deposit flight at their U.S. branches," said Neil Powell, an S&P Global analyst who covers North American financial institutions.However, Powell cautioned that the Brexit vote, in which U.K. voters opted to break from the European Union, means many of the claims "will be considered more risky."Financial sector participants have already seen increased risk impact credit ratings on the U.K., said Powell. He cited Moody's recent decision to change the rating agency's outlook on the U.K.'s long-term issue and debt ratings to negative from stable on its affirmed Aa1 rating.Claims could also drop in value if the price of the British pound "sees another dramatic decline and remains down relative to the U.S. dollar," said Powell.Separately, Fitch Ratings reported last week the Brexit referendum outcome "will be disruptive for U.S. global banks with significant operations in the U.K. and will weigh on their profitability in the short to medium term.""However, the impact is likely to be moderate as we believe they will be able to operate through other EU legal entities," the Fitch report added.Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynycRead or Share this story: http://usat.ly/29vUgww

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