Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Brexit market panic appears to be subsiding. That won't do much to change the impact of earlier financial market tremors on the first-quarter results of U.K. banks kicking off this week.

Yet any expectation for a clear steer on what Brexit risks have cost the banking sector will be disappointed. This last official reporting round before the June 23 vote may prove to be a baffling period for both underlying trends and one-off costs, likely leaving little for pro- or anti-European Union campaigners to chew over.

Rough Trade
Expected Q1 adjusted earnings per share performance for U.K. banks looks grim
Source: Bloomberg data, adjusted EPS analyst forecasts

First, the bad news. There's no doubt U.K. banks saw a rise in funding costs in the first quarter -- credit default swaps surged to their highest in at least two years for top British lenders, and spreads on senior debt rose about 30 basis points over the period. 

This was widespread across the banking industry, sure. But Brexit has been cited as an exacerbating factor.

Corporate activity was also subdued in the first quarter. That's again a feature for the banking industry as a whole, if U.S. bank results are anything to go by. Yet Brexit fears were singled out by the Bank of England in a quarterly survey of the sector, with weaker demand from large corporates linked to "uncertainty about the forthcoming EU referendum."

Minutes of officials' April policy decision also put the vote in the spotlight for hitting share sales, private-equity deals and commercial property transactions. That all points to a further squeeze on corporate and investment banking businesses.

But there's good news, too. Policymakers are keeping benchmark rates at rock bottom before the vote and credit is plentiful, stoking demand. Mortgage approvals are at almost the highest since before the financial crisis, while lending to consumers and small businesses has picked up.

Rounding Out the Laggards
U.K. banks were three of the five worst 1Q performers in the credit default swap market
Source: iTraxx Europe CDS index

Fine, but what about that potential squeeze on margins? Well, despite a rise in market funding costs, U.K. banks seem to have been able to offset some of the pain by attracting more household deposits -- even as they pay out less.

Retail deposit growth managed to tick up to an annual 5.9 percent in the three months to February, according to BOE data, and the British Bankers' Association reported an annual increase in deposits by small- to medium-sized businesses. That's good news for banks' access to funding and should soften the pain of broader financial-market strains seen in the quarter.

And banks may also even have profited from market jitters, as confusing as that sounds. European fair-value accounting rules allow banks to book gains in times of stress, as they theoretically could buy back battered debt at a cheaper price. That theory was put into practice in the first quarter, with Deutsche Bank flagging a 55 million-euro ($62 million) quarterly gain from buying back about 2 billion euros' worth of senior bonds amid a market rout.

Bittersweet for Banks
Barclays has seen accounting benefits as the value of its own debt worsened in recent years
Source: Annual report

The numbers may be murkier for the U.K. banks: Lloyds, which reports on Thursday, has already flagged a 700 million pound ($1 billion) one-off quarterly hit from buying back higher-yielding contingent capital bonds, even if it will save the bank money in the long run. But analysts reckon there may be accounting benefits in store too.

Numbers are hard to predict but they estimate at least a rise gains linked to debt values relative to last year -- Barclays, for example, reported a 430 million-pound gain in 2015. Standard Chartered, the first U.K. bank to report quarterly figures, said Tuesday it had booked an $84 million gain from buying back debt and an $89 million benefit from revaluing its credit. That's already more than the benefit it reported for the first half last year.

Overall, expectations are low for the quarter. Barclays, RBS and Lloyds are seen reporting double-digit-percentage falls in adjusted earnings per share. The big cost items are likely to still be restructuring, asset sales and other provisions. But even if a reporting line called "cost of Brexit worries" were invented, it's doubtful the number would give much ammunition to either camp.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at

To contact the editor responsible for this story:
Jennifer Ryan at