Much has been made of the impact that last week's vote in the United Kingdom to separate from the European Union ("Brexit") will have on the biggest banks in the United States. This is particularly the case for large international banks with operations in London and throughout Europe.
Given that Bank of America (NYSE:BAC) is among these banks, I reached out to one of its spokesmen to learn how it views the issue internally. He forwarded the memo that Alex Wilmot-Sitwell, the head of the bank's European operations, sent to its employees there.
Here it is:
As you are aware, the UK has voted to leave the European Union.
In the coming months, we will get a much clearer understanding of what the implications of this might be for our business, as well as the decisions that we will need to make before the change in membership becomes effective. It is to our advantage that we work in an organization that has a long track record of thriving on change -- be it regulatory, market or strategic. We have already successfully completed the largest combination of two companies in financial services history. I am therefore very confident that, when the time comes, we will again execute our plans efficiently, clearly and successfully.
Our immediate focus however must not be on ourselves but on ensuring that we are squarely behind our clients during these unprecedented times. Across each of our areas of business, we have many clients who will be reflecting on the changes that they will need to make in the light of the UK's decision. We must make sure that we are a vital contributor to that strategic dialogue and the first port of call when they are ready to transact their business.
So today, we must avoid distraction and instead think about what we can do to help our clients in the short, medium and longer term. Please make sure that our clients know that we are all committed to guiding them through the challenges ahead and that we will do everything we can to make their journey as seamless as possible. That means that, starting today, it is business as usual.
Thank you for your continued support.
This is how you want a bank to respond. The keys to running a successful bank are an even-keeled temperament and the ability to maintain one's composure in unusual times like these. This is presumably the reason Wilmot-Sitwell stressed that "starting today, it is business as usual."
On top of this, as Dick Bove of Rafferty Capital Markets stressed to me last week, U.S.-based banks which are able to stay focused on clients could pick up market share from European competitors that are more deeply embroiled in the turmoil.
This isn't to say that Bank of America won't be negatively impacted by the U.K.'s decision to leave the European Union, because it will be.
An analysis by Keefe, Bruyette & Woods predicted that a vote in favor of Brexit would reduce Bank of America's earnings per share by 3.1% this year and by 6.1% in 2017. And CLSA analyst Mike Mayo sees 10% to 15% downside in earnings per share for the nation's biggest banks over the next couple years.
But the reasons that earnings will fall are largely outside of Bank of America's control -- namely, higher market volatility leading to lower trading and investment banking income, and lower-for-longer interest rates, which will weigh on its net interest income.
For the time being, then, as Wilmot-Sitwell says, it's business as usual -- albeit in a very unusual environment.