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CONCLUSIONS
• Adverse impact of Brexit on the UK is overstated
• Main risk is retaliation by the EU Commission
• Challenges for the EU are underestimated
• By 2020 a strong English Pound, a stronger US Dollar and a weak Euro
BY ROB RÜHL
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CONTENT
FACTS AND ALTERNATIVE FACTS ABOUT BREXIT: WHAT ARE THE IMPLICATIONS FOR THE CORPORATE TREASURER?
• Process towards Brexit
• Risks and opportunities for the UK economy
• Challenges for the EU and the Dutch economy
• Banking landscape
• Consequences for cash pooling
BY ROB RÜHL
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BIGGEST RISKS UK
BY ROB RÜHL
“Supertramp: Fool's Overture
History recalls how great the fall can be. It seemed the answers were so easy to find. "Too late," the prophets (profits) cry. The island's sinking, let's take to the sky
• Uncertainty in the processtowards Brexit
• Retaliation by the EU commission
• Strengthening pound
“The island’s sinking, let’s take to the sky.”
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BREXIT PROCESS
• Article 50 proposal in EU council in March
• End of March start of a two year period of exit negotiations
• Followed by an interim EEA style arrangement (1 year)
• Breathing space tonegotiate a FTA with EU
• Start FTA with EU 2019/2020
BY ROB RÜHL
“WTOBASEDDEALISSTILLPOSSIBLE.”
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BREXIT OPTIONS
BYROBRÜHL
EEA Customs FTA with WTOUnion EU
Norwegian, Iceland
Switzerland, Turkey UK?? UK??
Free movement of Goods 3%Services negotiated negotiated negotiatedPersons
CET
Contribute to EU budget
Comply with EU laws 2% 2% 6% 13%regulations 2% 2% 6% 13%standards 2% 2% 6% 13%
Nontariffbarriers
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IMPACT OF BREXIT: ON THE U.K.
PLUS MINUS
BY ROB RÜHL
• Still trade with EU
• Low £ stimulates exports
• FTA’s with others (US)
• Business climate improves
• FDI inflow triggered
• London FC still important role
• Uncertainty
• Less (foreign) investments
• Trade diversion
• Changes financial sector
• Weak £ à inflation
• Passporting
“JAMIE OLIVER CLOSES 6ITALIAN RESTAURANTS IN UK.”
“BYE BYE BENIDORM.”
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
Brexit sceanrio's versus base (Real GDP growth)
CustomsUnion FTA WTO
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CHALLENGES FOR THE EU
OPPORTUNITIES MINUS
BY ROB RÜHL
• Reforming EU
• Reduce size bureaucracy
• Introduce a Northern anda Southern Euro?
• Punishment of UK
• Long lasting negotiations
• Less FDI inflow
• Negative impact EU economy, trade
Loss of popular support
Main risk: it takes too long
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IMPACT OF BREXIT: ON DUTCH ECONOMY
PLUS ? MINUS in 2016 -2026
BY ROB RÜHL
WTO Compared with base case, source CPB
• Loss of GDP 1.2%, FTA 0.9%
• Sectors of industry strongly linked to the UK, highest lossesin production (5.5 – 4.5%)
• Food industry, electronic equipment, cars and car parts, chemical industry
• Services sector is less linked = less damage
• Some companies may shiftpart of their activities tothe Netherlands
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THE TRUMP HERITAGE IN 2020
BY ROB RÜHL
• Moderate US Growth
• Government deficit up by 50% in 2020
• Inflation up but manageable
• Fed rate increased at least 200 bps
• Long term bond rate up by 90 bps
• Stronger US dollar weigh on export competitiveness
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CURRENCY AND INTEREST RATES IN 2020
BY ROB RÜHL
Eng £ under strong upward pressure, MPC kept Base rate as low possible. Yield government bonds increased
US $ still strong due to mixed bag of Trump results, gradual Fed rateincreases and higher bond yields
€ under downward pressure, ECB ‘s tapering and limited interest rateincrease. Not enough to stop weak €
”HEDGE THE EURO!”
”NORTHERN AND SOUTHERN EURO?”
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BANKING ENVIRONMENT IN 2020
BY ROB RÜHL
• Change in distribution of services between UK and EU
• Passporting of regulations
• Back to home markets and corebusiness, less risk appetite
• Competition by alternative fundingsources for corporates
• Reduction complexity of banking processes
• Participation in open banking conceptswith fintech companies
0
10
20
30
40
50
60
70
80
Bank Financing Corporate bonds
Private placements
Securitisation vehicles
New alternatives
Financing Dutch Corps
2010 2016
72%
63%
22%
33%
1% 3% 5%1%
Source:DNB2015
CURRENT SITUATION
DIFFERENT BREXIT SCENARIO’S
HURDLESEU member FTA with EU WTO Impact
Technical standards No ? Yes + or -/-
Capital restrictions No Yes Yes ?
Regulators No Yes Yes + or -/-
Taxes WHT No Yes Yes + or -/-
Taxes on X services No Yes Yes -/-
Corporate tax Yes Yes Yes +
Response EU banks No Yes Yes -/-
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CASH POOLING IN DIFFERENT BREXIT SCENARIOS
BY ROB RÜHL
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• This presentation was prepared by Rob Rühl, Director of Next Markets Advisory. The views expressed in this presentation reflect the personal views of the author. The presentation was prepared at the request of PowertoPay solely for the information of its clients. It contains no investment advice or an offer for the purchase or sale of any financial instrument or product. The information contained herein is not untrue or misleading at the time of presentation. The information contained herein is subject to change without notice. The author cannot accept any liability for any direct of consequential loss or damage arising from any use of this presentation or its contents. Copyright protection exists with respect of the contents of this presentation. Therefore nothing may be reproduced, distributed or published by any person for any purpose without prior written consent of the author.
• Main source of information: Oxford Economics, OECD and IMF several publications