IN FINANCIAL circles, the shock at the news that Britain has voted to leave the

European Union can be felt well beyond the City of London. Across the Channel,
financiers from Frankfurt to Milan are expressing regret, sadness and disbelief at news
that very few had expected. Everyone feels disheartened and sad, says Marie Owens
Thomsen, chief economist of Indosuez Wealth Management, the private banking arm of
Credit Agricole, who fears dark days lie ahead for Britain, including a worsening balance
of payments and a recession. In addition to Britains fate, money-managers on the
continent are worrying about volatility (and buying opportunities), risks of contagion,
what Brexit might mean for monetary policy and the euro and how it will reshape
Europes financial-services industry.
Of course our stock prices are not making us happy, says a spokesperson for ING, a
Dutch bank, after stockmarkets on both sides of the Channel slumped on the news,
Uncertainty and unrest are never good. Eric Chaney, head of the research and
investment strategy team at AXA IM (or Investment Managers), is getting plenty of calls,
especially from institutional investors and from Asia. People want to know whether the
City will atrophy; whether Italy will have a debt crisis or itself leave the European Union;
whether European banks might enter another downward spiral; whether the euro is in
peril again. So far, he says, investors response has been rational: When you have
existential questions and no answers, of course you see a flight to safe assets.
The most pressing question is how closely Europes fate is connected to Britains. Some
see a buying opportunity for European assets and for the euro, which they think are
unfairly being dragged down by events in Britain. Any correction outside of the British
market might be the best buying opportunity since 2009, says Ms Thomsen.
Others fear contagion, both in the short and in the long term. Spreads between the
bonds issued by Europes most fiscally conservative governments and more indebted
Mediterranean spots have already widened sharply (by 0.5% between Spains and
Germanys 10-year bonds when markets opened on Friday, for example). BlackRock, a
big American asset manager, says it predicts a weaker euro over time, lower European
growth, and thus a poorer outlook for European assets. Christian Gattiker of Julius Baer,
a Swiss bank, sighs and says he is worried and closely monitoring the situation.
Beyond the immediate volatility in currencies, he particularly worries about what lies
ahead for monetary policy in Europe. Given the lengths the ECB has already had to
resort to, he worries that more upheaval might pave the way for helicopter moneythe
printing of cash to be given directly to governments or citizens, in an effort to stir growth
and inflation.
Finally, theres the question of whether firms will move out of London and whether other
European financial centres might benefit. Frances Central Bank governor, Francois
Villeroy de Galhau, has already warned that banks in London would lose their financial
passport privileges once outside the EU, and Eurogroup President, Jeroen
Dijsselbloem, said restricted access to the single market would be the price of leaving
the EU.

While bank bosses are careful not to draw any hasty conclusions, off-the-record, they
admit that over time they may well reduce their presence in London. INGs
spokesperson says that his bank will follow its clients and if they want to move to Paris
or Frankfurt or Amsterdam it would be strange not to follow. This will reshape the
financial landscape in Europe for sure, says Mr Gattiker. One concern is that there will
be fierce competition among several wannabe financial centres, leading to a diffuse and
inefficient financial system. With a contentious referendum on constitutional reform
coming up in October in Italy, and populists across the continent calling for their own
referendums on EU membership, the only thing that is certain is more uncertainty. And
whilst hedge-fund managers may like that, most institutional investors do not