• U.S. lenders would see increased costs, analysts predict
  • Exit would see staff shift and cut to earnings, report says

JPMorgan Chase & Co. and Goldman Sachs Group Inc. are likely to be hardest hit among America’s biggest banks by a possible British disavowal of the European Union this month, according to analysts at Keefe, Bruyette & Woods Inc.

The two U.S.-based lenders are “most exposed to the potential negative fallout” from a so-called Brexit because they generate a large amount of their income from the U.K. compared with peers, the analysts led by Brian Kleinhanzl wrote in a research note dated June 15. JPMorgan’s and Goldman Sachs’s U.K.-based units generated a total of $14 billion in operating income in 2014, exceeding that of their three main U.S. rivals combined, according to the note.

Policy makers at the Bank of England intensified warnings Thursday about the risks of leaving the EU, saying the damage could extend to global markets and the world economy. All of the five biggest U.S. banks, including Bank of America Corp., Citigroup Inc. and Morgan Stanley, would see costs increase and capital markets activity decline in the event of vote in favor of Brexit on June 23, according to the note.

“We’d expect the banks to experience both revenue and expense headwinds” during a two-year transition period, the analysts said in the note. The analysts wrote that longer term, the impact for the banks would “be a wash.”

Lost Passport?

If an exit occurs, banks could lose the ability to use their U.K. subsidiaries for so-called passporting privileges that allow the firms to conduct business in other European economic area countries. That means banks will probably need to move jobs in the U.K. to other European countries.

As many as 4,000 of JPMorgan’s U.K. employees could be affected, more than any other U.S. lender, according to KBW. On a percentage basis, Goldman Sachs employees would suffer the most, with 4.4 percent of all employees or 1,600, impacted.

Estimates for 2017 earnings per share for JPMorgan would drop by 6.7 percent to $5.96 in the event of a Brexit and by 7.9 percent to $16.76 for Goldman Sachs, KBW said.

Spokesmen for Goldman Sachs and JPMorgan declined to comment.

Exchange houses would also be affected by a vote to leave, KBW said. Earnings estimates for U.S.-based Intercontinental Exchange Inc. would drop by 5.1 percent to $14.78 a share because of a “negative impact” on European rate futures volume and foreign-exchange. Estimates for Bats Global Markets Inc., another exchange firm, would fall 5.9 percent to $1.57 a share, KBW said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE