A UK decision to leave the European Union would deprive the EU of one of its best-rated members, leaving the bloc and its investment bank vulnerable to credit rating downgrade.<\/p>\n
While ratings agencies have warned a vote to leave could hurt the UK’s rating, a Brexit could also have consequences for institutions which Britain supports via its EU membership.<\/p>\n
Britain accounts for some 16 percent of the EU’s nominal gross domestic product, makes a net annual budget contribution of about 6.5 billion euros ($7.2 billion) and is among the highest-rated of the EU’s 28 members.<\/p>\n
It is rated AAA by S&P, Aa1 by Moody’s and AA+ by Fitch.<\/p>\n
“European entities which would be most affected in the case of Brexit are the European Union itself, with a risk of being downgraded, and the European Investment Bank (EIB),” said Societe Generale strategist Cristina Costa in a note.<\/p>\n
The EU, which has about 54 billion euros in outstanding bonds, is rated AAA by Fitch, Moody’s and DBRS and AA+ with a negative outlook by Standard & Poor’s.<\/p>\n
Since the agencies have stressed the average weighted ratings in their approach to supranational borrowers, a British departure could weigh on the ratings of the EU and the EIB, analysts said.<\/p>\n
No comment was immediately available from the EU.<\/p>\n
There would be no immediate rating impact from Britain leaving the EU on any of the bloc’s other members, Moody’s said on Thursday.<\/p>\n
WATCH OUT<\/strong><\/p>\n Analysts say the EIB is especially at risk from a potential Brexit because while the EU and the EIB have similar memberships, they have different structures with regards to financing from its shareholders.<\/p>\n Unlike the EU, the EIB operates like a bank, so has its own capital base – about 243 billion euros, according to its latest financial report. The EIB is also able to tap additional funds known as callable capital, which is almost 222 billion euros.<\/p>\n Because ownership of the EIB is concentrated in the region’s five largest economies, its profile would weaken if the UK left, analysts said.<\/p>\n The UK has a 16.1 percent share of the EIB’s capital, similar to that of Germany, France and Italy, as this graphic shows<\/p>\n While other member states would probably pick up a reduced UK share, the uncertainty could weigh on EIB bonds.<\/p>\n According to SocGen, the loss of Britain as a shareholder would lower the share of high-rated EIB backers to roughly 60 percent from 66 percent.<\/p>\n An EIB source told Reuters there was no automatic consequence of a Brexit on the EIB’s AAA rating.<\/p>\n “If it were to materialize, the EIB would closely monitor any potential impact … and would consider how best to address such a situation and reassure the markets in due course,” the source said.<\/p>\n Commerzbank rates strategist Rainer Guntermann said any Brexit downgrade to the EIB’s ratings could have implications for bond investors.<\/p>\n “Regulation-driven investors in the insurance sector, even if not forced to, prefer to hold triple A-rated paper such as from the German government, EIB or German agencies,” he said. “There would be a significant impact if the EIB rating were to slide just one notch.”<\/p>\n The gap between EIB bond yields and the European agency benchmark, KfW, has been tight with the five-year yield spread at about 6-8 basis points.<\/p>\n As the June 23 vote approaches, SocGen and Commerzbank anticipate wider spreads.<\/p>\n SocGen’s Costa said spreads could widen by at least five to 10 bps even with support from the ECB’s bond-buying program.<\/p>\n Other institutions such as the European Stability Mechanism, the European Financial Stability Facility, and the European Bank for Reconstruction and Development, were not expected to take a direct hit.<\/p>\n","protected":false},"excerpt":{"rendered":" A UK decision to leave the European Union would deprive the EU of one of its best-rated members, leaving the bloc and its investment bank vulnerable to credit rating downgrade. While ratings agencies have warned a vote to leave could hurt the UK’s rating, a Brexit could also have consequences for institutions which Britain supports …<\/p>\n","protected":false},"author":3,"featured_media":50471,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[36],"tags":[],"class_list":["post-50468","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-te-public"],"yoast_head":"\n