Canadian firms mired in uncertainty after Brexit vote

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From London to New York and beyond, the world's largest financial institutions were shaken Friday by Britain's shocking decision to leave the European Union.

Bay Street couldn't escape the reverberations of a vote that has rattled the global financial system and threatens to displace London as the centre of Europe's banking universe.

Canada's big banks, Canaccord Genuity Group Inc. and Great-West Lifeco Inc. – all with either substantial European operations or exposure to the global economy – were swept up in concerns that their investment banking, wealth management and insurance operations would suffer from what could be a protracted period of economic uncertainty.

"Royal Bank of Canada's vulnerability will not cease with this particular referendum," Peter Routledge, an analyst at National Bank Financial, said in a note. "The United Kingdom's decision to exit the European Union will, in all likelihood, trigger similar drives in other countries."

In Europe, the uncertainty yielded some terrifying declines among the stocks of blue-chip financial institutions, as executives mulled the long-term implications of London's departure from the EU.

Among U.K. lenders, Barclays Bank PLC shares fell 18 per cent and Lloyds Banking Group PLC fell 21 per cent. Among multinational banks, Deutsche Bank AG fell 16 per cent, BNP Paribas fell 17 per cent and JPMorgan Chase & Co. fell nearly 7 per cent.

"At this stage, we cannot fully foresee the consequences, but there's no doubt that they will be negative on all sides," said John Cryan, Deutsche Bank's chief executive officer, according to the Financial Times.

Jamie Dimon, CEO of JPMorgan, reiterated his warning that the U.K.'s exit from the EU – known as Brexit – could send a quarter of the bank's 16,000 U.K.-based staff out of the country.

"In the months ahead," Mr. Dimon said in a memo obtained by the Times, "we may need to make changes to our European legal entity structure and the location of some roles. While these changes are not certain, we have to be prepared to comply with new laws as we serve our clients around the world."

By comparison, Canadian financial executives were more reserved about their likely actions.

In a statement, Toronto-Dominion Bank said: "We will work to ensure minimal disruption to our businesses, employees and customers."

RBC said it was monitoring the situation closely and remained committed to the region: "We are confident that we will be able to support our clients whatever the outcome of the negotiations."

Nonetheless, Canadian financial stocks were caught in the global downswing, suggesting investors believe that the knock-on effects of Brexit will affect a wide swath of institutions. The S&P/TSX financials index fell 2.7 per cent.

RBC has 6,000 employees in Europe, with offices in the U.K., Channel Islands, Belgium, France, Italy, Ireland, Luxembourg, Switzerland and Spain – making it the most exposed among the Big Six banks. These offices serve corporate, institutional and high-net-worth clients.

Mr. Routledge noted that RBC's European capital markets operations – a focus among analysts given the sensitivity of investment banking to economic uncertainty – accounted for 15 per cent of the bank's overall capital markets revenue over the past year.

Toronto-Dominion Bank has 800 employees in the U.K., working for its brokerage and investment banking arms, with offices in London, Leeds and Manchester.

At Great-West Life, Europe accounts for more than 40 per cent of the insurer's profit.

So far, though, Canadian financial institutions have not announced any contingency plans associated with the U.K.'s vote to leave.

Canaccord, an independent brokerage whose British and European operations accounted for 36 per cent of its revenue in fiscal 2016, noted that volatility associated with Brexit could deliver some benefits.

"While the ultimate effect on capital markets of Brexit is uncertain, the only thing we can be sure of is that there will be short-term volatility," Canaccord CEO Dan Daviau said in an e-mail.

"This presents challenges, but also opportunities – gold names, for example, are expected to gain strength, which will improve activity levels in a space where we have been historically dominant."

Its shares fell 5.9 per cent.