In the reaction of the British population having voted to leave the EU on 23rd, leasing industry experts have warned the market to expect some short term instability, and that the longer term future is uncertain.
Leasing market intermediaries expressed shock at the result but stressed that the status change was to become the new normal.
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Chris Cooper, managing director at Challenge Consulting, said: "The instant reaction will be shock, surprise and uncertainty. There was no real sense that Leave would win, so people are still taking it in. Personally, I think it’s really hard to call what will happen next. In the immediate term, both here and EU, my best hope is that worry and fear, and I sense both this morning, will quickly subside as people get used to waking up in the new world."
Lindsay Town, chief executive officer at IAA Advisory, said that the causative effect of the vote on the political status of the Union with Scotland could cause difficulties for British businesses.
"Uncertainty remains the biggest risk, far more than a status of in or out of the EU," said Town. "The uncertainty of what leaving the EU actually means will impact Investment decisions in the near term. The added potential disruption of Cameron’s announcement and the risk of Scottish independence rearing its head again will not be positive for the UK economy. Wider afield, I worry that there will be pressure from other anti EU parties in Europe that will also add to instability."
European investment and regulation in the UK
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By GlobalDataEarlier this week, the European Investment Bank (EIB) announced a deal with Funding Circle to provide £100m (130.47) of funding to UK SMEs.
A spokesman for the EIB said that the future of the EIB’s involvement in investment in the UK was now under question, but said any contracts signed would "be respected".
The EIB spokesman said: "We would expect the UK shareholding in the EIB and EIB lending in the UK to be one of many issues to be discussed in withdrawal negotiations, and we would expect the UK to remain a shareholder in the EIB, with a 16% shareholding, until a withdrawal agreement is implemented."
The Financial Conduct Authority (FCA) warned that the vote will have significant implications for the UK, as much financial regulation currently applicable in the UK derives from EU legislation, and this will remain applicable until any changes are made.
It said firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.
But it is likely that the resources that the FCA has will now be focused on the post-EU transformation of the UK’s financial system.
The FCA added: "The longer term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future. We will work closely with the government as it confirms the arrangements for the UK’s future relationship with the EU."
The Finance & Leasing Association (FLA) also suggested that it will be some time before the full consequences of the vote are known. Stephen Sklaroff, director general of the FLA, said: "We are at the beginning of what will be a long process of discussion and negotiation. As the Bank of England and FCA have already emphasised, the current legal and financial regulatory framework for FLA members remains exactly as it was before the vote, and it is likely to do so for some considerable time.
"The UK has a strong and resilient financial sector and the FLA’s members will continue to make a vital contribution to the economy.
"The FLA will work closely with the government, regulators and other stakeholders to ensure that its members’ interests are properly reflected in discussions over the coming months and years about the possible market and regulatory consequences of the decision to leave the EU."
Transition
Grant Thornton suggested there will be three broad phases of reaction to Brexit: initial volatility, medium term uncertainty and instability, and finally a longer term transition period.
The impact of this will be different for different organisation, Grant Thornton warned. It advised companies: "In looking at the threats and opportunities these create for your business, and planning how you can create and protect value, you may wish to consider the short, medium and long term implications for issues like people and talent, strategic ambitions, financing, risk, operations and protecting investment."
The National Association of Commercial Finance Brokers (NACFB) agreed that immediate uncertainty. Paul Goodman, chairman of the NACFB, said: "In the wake of the Leave result, and the resignation of David Cameron, the UK is facing a period of considerable uncertainty, and small and medium-sized businesses will not be immune. Nobody knows how the result of the EU Referendum will play out, and its ultimate impact on the economy, but choppy waters in the short-term are almost guaranteed. The political events of the past 24 hours have the potential to shape the UK business landscape for many years to come. It’s just impossible to know whether it will be for better or for worse. What we shouldn’t forget is that the economy is robust and employment levels high. Managed correctly, the result of the referendum does not have to trigger a replay of the Global Financial Crisis. Bank of England Governor, Mark Carney, made a statement to this effect shortly after the Prime Minister’s resignation"
Challenges for bank-backed asset finance
Stuart Law, founder and chief executive of peer-to-peer funding platform, Assetz Capital, said that Brexit would create a big opportunity for its investors as he thought bank interest rates on business loans were likely to rise, making banks less competitive.
"Banks’ lending volumes are now reduced and at the same time, they are likely to lower their savings account rates even further," said Law. "This will allow us to continue to grow strongly and deliver more lending to quality businesses who can provide us with solid loan security and also deliver more interest to our lenders. "
Law continued: "We have lent over £120m to the British economy backed by what is principally strong property security at modest loan to value, and as a result our lenders have earned approaching £12 million of interest since 2013. We expect this to continue but the credit team will be even more careful on the quality of businesses we lend to as we navigate the inevitable wobbles created out of the Brexit. Hard security on loans will be even more important."
Manufacturers cite jobs at risk
Hitachi chairman Hiroaki Nakanishi has said a Brexit would force a ‘rethink’ of the manufacturer’s operations and jobs in the UK, and that this view was shared by international investors such as the parent manufacturers of leasing businesses; Siemens, GE, and Microsoft.
Nakanishi said Hitachi had invested a billion pounds creating jobs in the UK’s rail and energy sectors, but that the ‘critical benefit of investing in the UK’ was that it was the best base for accessing the European market of 500 million people.
Nakanishi added: "There are other reasons like the size of the UK market, availability of local and international talent and the support of our local communities – which is why we take a positive view of the UK inside Europe. Therefore we have our regional headquarters here and moved our global rail headquarters to London. But take away the UK’s membership of the EU, and the future investment case looks very different."
Nakanishi also mentioned Nissan and Toyota’s arrival in the UK in the 1980s on the basis that if they produced cars in the UK and employed a British workforce then they would be treated as European companies.
"This was only possible because Britain was inside the EU; and so the UK car industry was revived and became an exporter again," said Nakanishi.
According to Nakanishi, Japanese companies account for 140,000 jobs in direct employment and supply chain in the UK. He said a survey of these 140,000 employees revealed that 95% did not want to leave the EU because of the threat to their employment.
