Finance directors raise alarm over Brexit no-deal prospect

The prospect of the UK walking away from Brexit negotiations without having secured a deal with the EU has become a real and present threat to UK companies, their finance directors have revealed.

A number have told Financial Director in recent days that their scenario planning includes the likelihood of the UK being thrust into a no-deal scenario- where the country would need to operate along World Trade Organisation (WTO) rules.

Their voices are being heard as some of the UK government’s most senior figures such as international trade secretary Liam Fox are stating that a no-deal scenario is fast becoming the most likely outcome.

Yesterday Fitch became the first credit rating agency to say there was a strong chance of such an outcome, warning that “an acrimonious and disruptive no-deal Brexit is a material and growing possibility.”

Ian Smith, CFO of UK bank CYBG (formerly Clydesdale and Yorkshire Banking Group) says: “I think a no-deal is going to be challenging for everyone in the UK. As we’re a UK-only bank, there’s no question our fortunes are tied to those of the UK economy that will suffer if we do get a bad outcome.” But he adds: “I think the lower growth that accompanies the aftermath of a no-deal is something we think we can navigate through.”

Referring to both CYBG and Virgin Money that his bank acquired in May for £1.7bn, Smith says: “I am very comfortable with the place we may have to go to because the banks are in good shape. They’re both well run banks with conservative risk appetites,” he adds.

Kelvin Stagg, CFO of recruiter Page Group, which has seen its home market of the UK sharply impacted by Brexit, says: “It’s not going to get easier until we get some certainty. Honestly, I think the UK will be like this for another year, I don’t see it picking up.” But he adds: “I don’t see it getting particularly worse. I think generally people are resigned to it being a bit dull in the UK.

“Because it’s tough in the UK, we continue to try and do all the right things. We keep close to our customers, and continue to move people whose careers are blocked here. We moved 300 or so people from the UK to other parts of the world last year,” said Stagg.

Regarding the effects on Page Group’s UK banking practice, Stagg says the firm is not seeing a mass exodus away from London at present. “We’re not seeing much in terms of the noise around banks, such as every bank has run off to Paris.  In a way I wouldn’t mind if they did- as we’ve got probably got the biggest banking business in Frankfurt and Paris, so we ‘d pick up new business that we wouldn’t get otherwise,” he says.

Scenario planning

For some companies the challenge of Brexit, in particular the threat of a no-deal scenario, is seen as part of a wider set of challenging outcomes such as the imposition of tariffs by the US leading to retaliatory measures by other countries.

Paul Buddin, CFO of supercar developer McLaren Automotive and acting CFO of the McLaren Group which also includes its Formula One racing team, says: “We see Brexit as just one of a number of challenges that we face, that come from all sorts of sources. We’re quite a fast-paced business so we’ve learnt how to deal with these things through scenario planning,”

“We prepare for a number of scenarios. So if tariffs come in, what would we do? How would we react to that? When we can do something we will plan. Where we can’t foresee something we’ll apply ourselves and work around it,” he adds.

But while a number of finance leaders have raised concerns about the possibility of a Brexit no-deal scenario, but have calmly sought to address its implications, others have taken a more bullish view.

A finance director, who asked to remain anonymous, says: “The Leave campaign promoted itself with an extremely mixed message with various contradictory statements from its key players, from those who want to stay in the single market to those who wanted to leave it at any cost.

“Once a deal is agreed with the EU it has to be put to the public in a final referendum to ensure that the deal has a suitable mandate from the people. Otherwise, the debate will rumble on in the short term that the deal was not what was voted and too many people will be left extremely disappointed on both sides of the debate and the uncertainty and disruption this period has caused for businesses will continue,” he adds.

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