Wednesday, October 12, 2016

Sterling devaluation and banks


Foreign banks with big servicing centres in the UK — such as Citi’s centre of excellence in Belfast — gain because they pay for those centres in sterling, and they receive more sterling for their home currency when the pound is weak.


The flip side of the cost benefit is that every pound in profit banks earn in the UK is worth less when they repatriate it to their home currencies. US banks generally run their profitable European trading and investment banking businesses from London so the sterling devaluation is a “a drag on revenues from the UK and on pre-tax margins”, according to Brian Kleinhanzl, a New York-based analyst for KBW.

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