On Tuesday, European shares demonstrated mixed performance as market participants were still cautious ahead of this week’s policy gatherings by the ECB and BOJ.
The EURO STOXX 50 managed to gain 0.07%, French CAC 40 sank 0.21%, while Germans DAX 30 earned up to 0.06%.
Positive American data issued that week kept backing hopes for a rate lift by the US major bank in the nearer future.
While the vast majority of market participants expect the Fed to leave its monetary policy intact this week, it could provide hints on the timing of future rate lifts.
Apart from that, market participants were also looking ahead to Friday’s policy statement by the Bank of Japan, amid surging hopes for the announcement of extra stimulus measures.
Financial shares were mostly lower, as French lenders Societe Generale along with BNP Paribas headed south 0.73% and 0.66%, respectively, while German Deutsche Bank as well as Commerzbank went down 2.65% and 3.92%.
As for peripheral lenders, Italian Intesa Sanpaolo as well as Unicredit dipped 0.65% and 0.96% respectively. Meanwhile, Spanish banks Banco Santander along with BBVA dropped 0.21% and 0.39% respectively.
European banks amount to spend to maintain operations in the UK will rise sharply when UK left out of the European Union (EU), also known as Brexit, according to a study by Boston Consulting Group (BCG) was quoted by the Financial Times posted.
Specifically, according to BCG, European banks will have to spend more to 30-40 billion euros in the UK subsidiary to maintain operation after Brexit. So it means operating costs of European banks in the UK each year will increase from 8% to 22%.
The costs increase too high so more likely will lead to no less the Bank would cease some operations in Britain. Certainly, the foreign banks will encounter a lot of difficulties during the late Brexit by previous regulations, just they have a license to operate in one of the 28 member countries, they will have the freedom to operate in all the other Member States.
Hitherto, the focus of the attention of public opinion still is Bank of America, because they often consider London as a gateway to Europe. However, BCG's research report focuses on about 60 European Bank currently having one or more branches in the UK, included some of the most prominent names such as Deutsche Bank, Commerzbank, BNP Paribas, Santander, Societe Generale or some small banks like Erste, Novo Banco or Piraeus.
"Everybody says much about the Bank of America but in fact, European banks will impact more severely. In fact, Europe is not too important to the American Bank because it brings from 20 to 30% of their profits. But with European banks, UK is very important because with some banks sometimes 70% of their business activities currently housed in Britain", one of the senior researchers at BCG, Mr. Philippe Morel said.
Late Brexit, the first thing that European banks will need to do is apply for the license to operate in the UK, they had not thought of this for decades. In addition, they will also have to be bound to increase capital at the request of the governing body of the British banking industry, just like what happened in the United States.
Activities of the European Bank in Britain will be divided into operations in the UK and in Europe. As the calculations of BCG, the only German banks have to add about 10 billion euros and at least will have to increase capital by 10 billion euros. For the EU-wide banking industry, they will need to add at least 30 to 40 billion euros.
International Monetary Fund (IMF) on 8th of July has cut economic growth prospects of the region using Euro currency (Eurozone) within the next 2 years due to uncertainty from that the British voters chose to leave European Union (EU). IMF also warned that the situation could turn worse if the insecure psychology continues to reign in the financial markets.
Reuters said IMF forecast growth rate of total gross domestic product (GDP) of the 19 eurozone members will only reach 1.6% this year, compared with 1.7% given in once predicted. Growth forecast of this institution for the Eurozone in 2017 fell to 1.4% from 1.7%.
IMF said, the global economy continues to decelerate could derail the growth based on Eurozone domestic demand. In addition, Brexit effect, the wave of migrants, the increased security concerns, and the weakness of the banking system can adversely affect the regional economy.
Mr. Mahmood Pradhan, deputy director of the IMF's European region, also warned that if Brexit talks between EU and UK extended and increased risk aversion in global financial markets, the Eurozone growth will be even further reduced.
"If risk aversion sentiment lasts, we believe that its impact on growth could be larger. At this time, it is difficult to predict how long it will last," Pradhan told reporters.
Mr Pradhan also said that Eurozone growth is 1.4% in 2017 based on the assumption that EU-UK between negotiations take place relatively quickly with the result that Britain have still access of full tariff market of EU. Even this optimistic scenario also leads to slow investment and pressure on consumer confidence and the market, Mr Pradhan said.
IMF has not yet calculated the full extent of impact on growth in the case of that UK have access to the EU market under the basic rules of the World Trade Organization (WTO). Mr Pradhan said that would be a "significant change" for Britain, which EU countries account for about 40% of exports.
"If they go to the WTO option, then reaching agreement would also take a lot of time, and just this will cause big losses," Mr Pradhan said.
The report of IMF said the medium-term prospects of the Eurozone economy is not bright due to the impact of the problems due to the crisis, the high unemployment rate, public debt and private sector debt increases , to deep weaknesses in the structure.
"As a result, growth in the next 5 years will probably only reach about 1.5%, while inflation was only 1.7%," IMF identified.