The new rules of engagement

Eoin McGuinness, senior director, Bank of Ireland corporate banking gives his perspective on Brexit in relation to the corporate market

Amid turbulent scenes in the British parliament, preparations in Ireland continue apace, with businesses readying themselves for all possible outcomes as the Brexit deadline of October 31 looms.

Eoin McGuinness, senior director, Bank of Ireland corporate banking provides an update on what he has observed in the corporate arena, saying, “The overriding theme is the uncertainty caused since the Brexit referendum in June 2016, and the fundamental complexities involved in unravelling the freetrade rules currently in place.” The variety of concerns he has noted among Irish corporates range from the specifics around the impact of tariffs on a manufacturer’s own products, logistics in shipping and the unforeseen consequences of, in particular, a hard Brexit.

Indeed the wide range of concerns touch on every aspect of the Irish economy. As he sees it, “There are very few areas of the Irish economy that would be unaffected in the event of a disorderly Brexit, whether they be the first-order impacts on those companies involved in importing and exporting, to those Irish-only trading businesses impacted by the second-order, knock-on impact of a wider economic malaise arising from this unwelcome event.”

The waiting game

The uncertainty around Brexit has impacted decision-making across all sectors. McGuinness points out that a wait-and-see approach has mostly been implemented for those major investment decisions which are not acutely time-sensitive or immediately necessary, as companies keep a close eye on how events play out. “To date, with a few exceptions, there has been no major re-sourcing of supply chains or huge redirection to other markets,” he notes. “Ultimately, until Brexit actually happens, for a material cohort of our Irish customers, Britain continues to be their closest, largest and most lucrative export market.”

With the level of uncertainty in the market, one might have expected a slowdown in mergers and acquisitions (M&A) activity, but McGuinness notes that corporate activity has held up reasonably well throughout 2019, adding, however, “We have noticed in some cases, a degree of reluctance to close out transactions pending the outcome of Brexit – particularly as we get closer to the likely departure date.”

New Opportunities

For some, Brexit has presented new and unexpected opportunities, and unleashed a drive to take proactive measures. McGuinness has seen concrete evidence of this in the market with some companies acquiring capacity in Britain as part of a hedge against Brexit risks. “Bank of Ireland has continued all along to be supportive of this approach,” he says.

“It’s certain new opportunities will arise and a clear direction on Brexit (once it emerges) will provide a more stable environment for strategic decision-making and in turn capital deployment,” he notes. “We would certainly expect transactions that are currently delayed to gather pace, capitalising on the new reality post-Brexit.”

Supporting business

Bank of Ireland has a range of measures in place to support businesses through the Brexit uncertainty. There was a series of “Get to grips with Brexit” events held across Ireland over the past month to inform businesses of the practicalities of Brexit’s impact and information is regularly published on an online Brexit Hub. “In March, Bank of Ireland announced a €2 billion Brexit Fund to support businesses preparing for Brexit, demonstrating our commitment to the challenges they face,” McGuinness notes. “Bank of Ireland was the first Irish bank to participate in the SBCI Future Growth Loan Scheme and we continue to make these loans available. These supports provide a combination of working capital and longer-term funding at preferential rates on an unsecured basis to SMEs deemed exposed to Brexit.”

Hedging currency is a key risk-mitigation issue for any business trading internationally and Irish businesses have a long history of managing sterling fluctuations. The volatility around Brexit has only served to heighten activity in this area as hedging was a first reactive step for many businesses ever since the pound fell by 20 per cent after the Brexit referendum in June 2016. “Not hedging is a strategy but it needs to be a considered decision,” McGuinness points out. “I would encourage businesses to engage with their bank to ensure that they inform themselves of all the options. Hedging currency in a Brexit scenario is an important part of any package of measures to protect margins and profitability.”

McGuinness has already witnessed corporates availing of a broad range of supports and levers to assist with Brexit preparations, and advises: “Brexit will bring about an enormous change in the trading environment and businesses need to rely on strong and proactive management of their ‘controllables’, in addition to informing themselves about external supports from state and banking sources. We see corporates planning by examining their existing loan packages and amending as appropriate to fit their new circumstances and protecting margins via supply chain and currency management.”

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