Moody’s has warned that a Brexit could impact the credit rating of various bond issuers, including banks and insurers, as it warns the costs of the UK leaving the European Union outweigh the benefits.
In a report on the impact of Brexit, the ratings agency warned that banks, insurers and non-financial companies could all see their credit ratings affected by a Brexit.
“A UK vote to leave the EU would create heightened uncertainty, which would lead to modestly weaker economic growth in the UK over the medium-term. Brexit would have credit implications across different sectors,” says Colin Ellis, chief credit officer for EMEA at Moody’s and co-author of the report.
“For non-financial corporate issuers in the UK, Brexit would be credit negative, reflecting the weakened macroeconomic outlook. While Moody’s believes the UK and the EU would preserve most of their existing trading relationships, any substantial new barriers to trade would pose a more significant threat to corporate creditworthiness. Infrastructure companies could face uncertainty around new regulatory regimes,” states the report.
For banks the largest impact would be for those with cross-border business models, while UK-based banks and foreign banks with sizeable subsidiaries would be less affected.
“For sub-sovereigns, the negative economic consequences from Brexit could put pressure on transfers from the central government, while some issuers, such as universities and local authorities, could also face the loss of EU funding,” the report adds.
Moody’s says that the impact on the insurance industry would be “manageable” unless there was any change to the passporting rules.
“The general uncertainty following a Brexit vote would likely hit confidence across the EU and could weigh on economic growth. Brexit would also be credit negative for the EU as it could increase the risk of further exits from the bloc and heighten support for independence movements elsewhere,” Moody’s states.
Moody’s has previously warned that it could downgrade the UK’s credit rating if a Brexit occurred, saying it would assign a “negative outlook” to the UK’s Aa1 rating.