THE possibility of a no deal Brexit is gaining strength and has put the Spanish banking sector on alert.
Santander, which makes 13 per cent of its profit in the UK, and Sabadell, owner since 2014 of the TSB are particularly exposed.
Both have prepared contingency plans for all scenarios, including the worst scenario. Their businesses in the UK are susceptible to a fall in economic activity and demand for credit.
A fall in the value of the pound, which has already lost 16 per cent of its value against the euro since the 2016 referendum and 2.2 per cent since Boris Johnson was elected Prime Minister is also bad news for the banks.
In its latest financial report, Santander admits that a no deal Brexit could have “material adverse effects” on its access to capital and liquidity. It also acknowledges that it could have “significant repercussions” on operations, profitability and business.
To minimise the impact of Brexit, Santander agreed last year to move its investment banking division from London to Madrid.
Sabadell, for its part, faces the risk of a hard Brexit spoiling its plans to extract value from the purchase of TSB, now that it has already left behind the problems caused by the complex technological migration last year. This caused an additional cost of €321 million in the 2018 accounts.
The goal is for the UK to contribute 20 per cent of the group’s profit by 2021, but that could be optimistic if there is a disorderly exit. The English bank is currently running at a loss.
In its half-yearly report, Sabadell admits that if the UK leaves the EU in October without an agreement there would be “a significant drop in foreign trade for the UK” and that the economy would go into recession in 2020. In the first quarter of 2019, GDP grew by 0.5 per cent, but contracted by 0.2 per cent in the second quarter.
The group hopes that the European and British authorities will end up taking pragmatic decisions to avoid systemic disruptions in financial operations, according to the report.