If Labour leader Jeremy Corbyn became Prime Minister, it would be just as damaging to the profits of British banks as leaving the European Union without a withdrawal agreement, Citigroup has said.
With the prospect of a snap election becoming more likely as lawmakers in Westminster fail to agree on a withdrawal agreement, the bank said in a note to clients “the impact on UK domestic bank EPS [earnings per share] could potentially be similar in magnitude to a no-deal Brexit outcome”.
This is despite London-listed stocks having recovered from last year’s lows, with the likelihood of a hard Brexit gradually decreasing.
Based on the party’s current manifesto, domestic banks would initially plummet with the pound if Labour came to power, due to the “business unfriendly” deficit-financed policies that would likely lead to capital outflows from the UK, the bank said. However, the international banks would probably “hold firm” given the boost from an expected decline in sterling.
Furthermore, Citibank has emphasised that it cannot foresee how Labour’s intention to nationalise and disband the Royal Bank of Scotland Group would be financed.
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