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Morgan Stanley’s 2 charts explaining why Brexit isn’t Lehman

Balloon pin

For all the worrisome statements by senior bankers suggesting the UK’s vote is worse than Lehman, it’s not. There hasn’t been a systemic meltdown. Barclays’ has ‘stood down’ its crisis leadership structure. The sterling “Libor-OIS” spread may have risen its widest level for four years, but it’s all been manageable. In the words of Morgan Stanley’s analysts, the shock was, “seismic not systemic, and the UK banks are well insulated or quarantined.”

The two charts below help explain why.

Firstly, banks have rebalanced their funding towards deposits and are therefore less reliant on wholesale funding than they were. RBS had £343bn of short term wholesale funding requirements in 2008; today it has £17bn. Similarly, at its worst point in 2008, Morgan Stanley notes that RBS only held £90bn of liquid assets against £343bn of short-term funding; today it has £156bn vs. £17bn of short-term funding.

“UK banks can comfortably sit out the credit markets for a long period and,even if they do need to issue at more elevated spreads, the impact on profitability is likely to be less pronounced,” say the analysts.

Secondly, banks are now far better capitalized than they used to be. Tier one equity ratios have tripled since 2008.

Morgan STanley not Lehman

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