Deal or delay? Wall Street doesn't believe no-deal
Send a link to a friend
[February 15, 2019]
By Guy Faulconbridge, Helen Reid and Andrew MacAskill
LONDON (Reuters) - As the United Kingdom's
Brexit crisis deepens, Goldman Sachs and JPMorgan have differing views
of the ultimate outcome but the two titans of Wall Street agree on one
thing: They don't believe there will be a no-deal Brexit.
Unless Prime Minister Theresa May can get a Brexit deal approved by the
British parliament, then she will have to decide whether to delay Brexit
or thrust the world's fifth largest economy into chaos by leaving
without a deal on March 29.
Goldman Sachs said it sees a 50 percent probability of May getting a
Brexit divorce deal ratified, adding that lawmakers would ultimately
block a no-deal exit if needed.
Goldman said it saw the probability of a no-deal exit at 15 percent and
the probability of no Brexit at around 35 percent.
"There does exist a majority in the House of Commons willing to avoid a
'no deal' Brexit (if called upon to do so), but there does not yet exist
a majority in the House of Commons willing to support a second
referendum (at least at this stage)," Goldman said in a note to clients
"The prime minister will repeatedly try to defer the definitive
parliamentary vote on her negotiated Brexit deal, and the
intensification of tail risks will continue to play a role in
incentivising the eventual ratification of that deal."
JPMorgan said it thought May would now seek an extension to the March 29
May, who has repeatedly said Brexit will happen on March 29, suffered a
defeat in parliament on Thursday that undermined her pledge to EU
leaders to get her divorce deal approved if they grant her concessions.
She has promised that if parliament has not approved a deal by Feb. 26,
she will make a statement updating lawmakers on her progress on that day
and lawmakers will have an opportunity on Feb. 27 to debate and vote on
the way forward.
Irish Prime Minister Leo Varadkar said an extension to Brexit was
possible but not inevitable.
"If there is going to be an extension, it needs to be with a purpose, it
needs to be with a view to securing and ratifying an agreement,"
Varadkar said. "I donít think anyone would like to see this stalemate or
impasse or period of purgatory continue for months and months and
[to top of second column]
British and EU flags flutter outside the Houses of Parliament in
London, Britain January 30, 2019. REUTERS/Toby Melville
The divergent views from two of the most powerful Wall Street banks
indicates just how hard investors are finding it to read the
labyrinthine plots and counterplots of Brexit, the United Kingdom's most
significant political and economic move since World War Two.
"Having chosen to afford the PM extra time this week, our expectation is
that a majority of MPs (Members of Parliament) will finally be prepared
to begin to take action to attempt to ensure that a "no deal" exit does
not occur at that point," JPMorgan said.
"We continue to think it likely that, rather than allowing the vote and
consequent ministerial resignations to occur, PM May will attempt to
forestall by stating that she will seek an extension herself."
Most major banks got the 2016 referendum wrong.
The consensus then was that the United Kingdom would not vote to leave
the EU. As results came in showing that it had, sterling had its biggest
one-day fall since the era of free-floating exchange rates introduced in
the early 1970s.
In private, though, many bankers are deeply worried about the
possibility of a no-deal Brexit.
"The more messy this gets the more worried I am that we are heading for
no deal," said an executive at one investment bank in London who spoke
on condition of anonymity.
"We still expect a last-minute deal, but the closer we get to exit day
we become less sure," the banker said.
Berenberg, one of Europe's oldest banks, said it saw the chances of May
getting a majority for her deal at just 10 percent. It sees a 30 percent
chance of a hard Brexit and a 20 percent chance of no Brexit.
(Writing by Guy Faulconbridge; Editing by Janet Lawrence)
[© 2019 Thomson Reuters. All rights
Copyright 2019 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.