While we noted earlier the dramatic outflows and record selling in stocks in UK [12], Credit Suisse warns, it could get much worse...
The flow diagram below explains how the uncertainty over Scotland's currency and ability to backstop its financial sector can set in train a self-fuelling feedback loop of rising risks and costs to the Scottish financial and sovereign sectors, and a steady migration of capital, activity, jobs and taxes.
[13]
And these are the companies most exposed to Scottish economy(via Bloomberg) including sales, manufacturing or employment:
Aerospace, Defense, Industrial:
Amec (majority of 28% of UK rev.: BofAML), Aggreko (Glasgow HQ), Babcock (owns Air Power and sites near Rosyth, Clyde dockyards; 4,750 staff), BAE (Glasgow dockyards, significant interests/staff, govt contracts), Hunting (majoring of 14% UK rev.: BofAML), James Fisher (Defense unit based in Ichinnan), Petrofac (majority of 26% U.K. rev: BofAML), Rolls-Royce (2,400 employees, six facilities), Weir (HQ Glasgow, 13,750 employees), Wood Group (majority of 30% U.K. rev.: BofAML)
Asset Management:
Aberdeen Asset Management (HQ in Aberdeen, 2,062 employees), Jupiter Fund Management, Hargreaves Lansdown
If “yes” vote, single-tier pension from 2016
Banks:
Lloyds (3.7% of total assets, 6.3% of total customer loans), RBS (1.4%, 3.6%), Barclays (0.3%, 0.8%), HSBC (0.1%, 0.4%).
TSB, RBS, Lloyds, NAB Top Banks Exposed to Scottish Independence Risk
Business Services:
Aggreko (HQ in Glasgow, manufacturing & product development facility in Dumbarton), Rentokil Initial, Capita (has contract for provision of IT to Scottish public sector), Teleperformance (call centers, ~4,000 employees)
Chemicals:
Elementis (site in Livingston), BASF (Paisley, Lewis), Dow Chemical (Grangemouth), ExxonMobil (Fife Ethylene) Johnson Matthey (sites in Aberdeen, Edinburgh), Syngenta (Grangemouth)
Drugs
GlaxoSmithKline (manufactures pharma ingredients at Montrose, respiratory medicine at Irvine)
Food & Beverages:
AG Barr (40% of sales), Diageo (29 whiskey distilleries, 4,000 staff, GBP3b in sales), Pernod Ricard (owns Glenlivet, Chivas Regal; 15 Scotch distilleries, 2 bottling sites); Heineken (Edinburgh brewery)
General/Food Retail:
Sainsbury (8,000 staff, 60 stores), Tesco (Scottish workforce is ~4x Sainsbury’s, according to Barclays), Wm Morrison, Next, Kingfisher, Asda
Insurance:
Standard Life (HQ Edinburgh, 8,000 employees)
Oil & Gas:
BG (16% of output in U.K.), Total (5%), BP (3%), Shell (3%), OMV (1%)
Westhouse: EnQuest (all P&D UNKS assets, except Alma/Galia in Scottish part of North Sea), Ithaca all (P&D UKNS assets, except Anglia, Topaz, Wytch Farm field); Parkmead (all UKNS assets, except for 7 blocks in Southern Gas Basin, 2 licenses in Central North Sea); Faroe (Blane, Curlew South assets)
Property/House Builders:
Via FX, businesses moving: Derwent London (Glasgow holdings), British Land, Berkeley, Bovis, Redrow
Weaker GBP would increase attractiveness of U.K. commercial real estate, good news for London house prices: Barclays
Transport:
IAG, Ryanair, EasyJet, Royal Mail (may be renationalized, ~7% employees), FirstGroup (Aberdeen HQ, ScotRail franchise), Stagecoach (Perth HQ, runs Scottish buses), John Menzies (Edinburgh HQ), National Express (~1% of rev.) Air Passenger Duty to fall 50%
Utilities:
Centrica (risk to assets, operations in North Sea; policy risk)
SSE (Perth HQ; Distribution/Transmission assets, policy risk; has 47% of EV in Scotland, Credit Suisse says)
National Grid (policy risk) and Pennon (through Viridor), mid-single digit % exposure for both, UBS says
Iberdrola (owns Scottish Power, has nearly 15% of EV in Scotland, Goldman says)
Scottish economy makeup as of 2011:
Govt, health, education ~22% of GVA; Financial, insurance, real estate ~17%; Distribution, hotels, catering ~13%; Manufacturing ~12%; Professional, support services ~10%; Transport, storage, communication ~8%; Construction ~7%; Mining ~3%
* * *
Longer term, Credit Suisse warns, the "cat is out of the bag".
Companies and governments have been forced to reveal contingency plans and unshakeable premises have been seen as vulnerable to attack (What is a pound? What is the UK?) A decisive (or, in the near term, a narrow) "No" puts these issues back on the back burner behind monetary policy and the like. But any "Yes" (and over time, in our view, a narrow "No") reopens similar questions elsewhere.
And as Citi warned previously,
More broadly, "Referendum Risk" is one of the more powerful manifestations of what we have termed Vox Populi risk, the Crimea being a particularly powerful, if extreme, example. In particular, what happens in Scotland will be particularly closely watched in Spain, which is facing a referendum on Catalan independence. Latent independence movements elsewhere, such as Belgium, could also be influenced by the outcome in Scotland. We regard the revival of local/national concerns, from Scotland to Spain and beyond, as part of continuing anti-establishment sentiment and a backlash against globalisation. And the UK experience (with growing support for UKIP alongside faster economic growth) raises the issue that economic recovery alone may not be enough to reverse the rise in anti-elite, anti-establishment sentiment.
