How bad could things get if the people of Scotland vote for independence next Thursday?
With the Westminster elite in full-on panic mode as the Yes camp takes the lead in opinion polls, it is hard to see which way the vote is going to go.
Investors appear to be coming round to the idea that Scotland is a little over a week away from breaking up the United Kingdom.
Japan’s biggest bank, Nomura, has this week been advising its client to cut exposure to the UK and prepare for a possible collapse of the pound.
They referred to a possible separation of England and Scotland as a “cataclysmic shock” to the economic system and markets.
The Japanese bank has been recommending its clients ‘short’ positions in UK banks and also Gilts, with its foreign exchange strategist predicting a 15% fall in the value of the pound.
At least it will be good news for exporters…
Scotland has a big financial services sector, dwarfing falling oil revenues with its annual contribution to Scottish GDP.
Trouble is, these companies tend to do business with English customers; around 90% of the customers of Scottish financial services (think RBS, Lloyds Banking Group and Standard Life) come from south of the border.
So should Scotland opt for independence next week, we expect many of these companies will up sticks and relocate to London (or elsewhere in England). It would make little financial sense for them to stay put and lose much of the revenues as English customers migrated to English firms.
Today we have heard that the Financial Conduct Authority (FCA) has ‘contingency plans’ in place, should Scotland vote ‘yes’ next week.
Admitting ‘there would be a lot to do’ (understatement of the year) in the event of a ‘yes’ vote, the FCA said it has ‘basic contingency plans’ in place, such as making sure their phone lines as manned. Very reassuring.
Remember though that independence is not an event that will happen overnight next Thursday. It will take a year or longer to conclude.
This is plenty of time for English customers of Scottish financial services firms to find out what plans those firms have for relocating to England and considering whether to stay put or move to a more suitable provider.
Whether or not Scotland votes for independence on the 18th of September, the instigation of the referendum process might just be enough of a trigger to prompt Scottish financial services firms to implement their onshoring plans regardless.
It could also take some time before foreign investors regain confidence in the unity of the United Kingdom, restoring long-term value to equities, government debt and currency.
