Hard Brexit under low growth and low interest rate environment calls for caution

Published By: Eunice Gettys on January 30, 2017 11:14 am EST

Barclays PLC (ADR) (NYSE:BCS) downgraded at Berenburg from Hold to Sell as its trades lower in the pre-market trading hours. Barclays, along with other major European banks, have posted decent earnings that boosted the stocks even more. Low growth and low interest rate environment post-Brexit keep the stocks on an edge.

Barclays has focused on its investment banking division at its core markets in the UK and the US. Growth in emerging markets, such as Africa and Asia, has been threatened by low demand. A global slowing economy has enforced several banks to pull out of the emerging markets, which in prior years, were the growth engine.

Barclays was still in the process to restructure under CEO Jes Staley from the non-core markets. Last year, Brexit outcome gave another hit to the UK banks as London loses its position as the single-entry access to the European markets. Barclays announced last week that it has started to prepare its post-Brexit contingency plan and looks to move its headquarters to Dublin.

“We have made clear repeatedly that we will plan for a range of Brexit contingencies, including building greater capacity into our existing operations in Dublin,” the bank said in a statement. “Identifying available office space is a necessary and predictable part of that contingency planning process.”

Since the confirmation of UK Prime Minister Theresa May about the hard-exit. Bank executives have become more vocal regarding the shifts from London. Goldman Sachs, UBS and JPMorgan believe that the transfer of jobs will be more than previously anticipated.

Barclays is expected to be at the receiving end in the short-term, but banks can reinvent their business structures, especially for Barclays, where it wants to focus on its core-markets UK and US. The stock has climbed over 20% since the election day over favorable policies under President Donald Trump. Inflated bank stocks are poised for a pullback. Thus, the analyst recommends Sell