Ripples from Britain’s surprise decision to split from the European Union spread rapidly to Charlotte on Friday.
Shares for some of Charlotte’s largest companies took a beating from the minute the markets opened, and businesses scrambled to understand the vote’s impact on everything from interest rates to profits.
The turbulence, which sent the Dow Jones Industrial Average plunging 610 points, came after 52 percent of British voters endorsed leaving the European Union. The move threw Europe into turmoil and led to the resignation of British Prime Minister David Cameron.
The prospect of prolonged uncertainty rattled investors and executives:
▪ Stocks of Charlotte’s banks and some of the city’s other Fortune 500 companies fell sharply. Charlotte-based Bank of America’s stock fell more than 7 percent, and San Francisco-based Wells Fargo posted a drop of more than 4 percent. The selloff also hit steelmaker Nucor Corp. (more than 5 percent), Bubble Wrap maker Sealed Air Corp. (more than 4 percent) and auto dealer Sonic Automotive (more than 2 percent).
▪ Portfolio managers in Charlotte fielded calls and emails from investors concerned about what the so-called Brexit would mean for their holdings. Some managers advised clients to give second thoughts to investments in sectors that might face particular headwinds, such as banking and insurance.
▪ Some Charlotte economists said while they don’t expect dramatic fallout in North Carolina, the vote could threaten economic growth – by hurting businesses that export to Europe, for example. Brexit also could scuttle some companies’ plans for expansions as unfolding events in the U.K. discourage them for taking on new risks.
“Folks aren’t sure how the Brexit will impact them, and nobody can really tell them,” said Mark Vitner, senior economist for Wells Fargo Securities in Charlotte.
“This is definitely a negative development for what it means for economic growth” in Europe and around the world, he said.
Borrowers win, savers lose
The Brexit decision will mean fresh pain for savers, as it could further slow the pace of the Federal Reserve’s interest rate increases, said Don Olmstead, managing director of Charlotte-based Novare Capital Management.
“Probably we’re going to have lower rates for longer now,” he said.
The Fed’s benchmark federal-funds rate remains low despite the central bank increasing it in December for the first time since slashing it to near zero in 2008. A slow pickup in interest rates is bad news for holders of certain investments, like certificates of deposits and tax-free bonds, Olmstead said.
“They’re definitely going to be hurt if we’re going to be lower for longer,” said Olmstead, whose company manages portfolios for about 250 high-net-worth families in Charlotte and around the country. His wife woke him at 6 a.m. Friday, half an hour earlier than he usually rises, to tell him about the Brexit outcome.
“I knew I was going to have an interesting day at the office,” he said.
Olmstead said clients were contacting him Friday with questions about how Brexit might affect their investments.
For his part, he doesn’t believe Brexit will affect the economy in the United States much, so he’s advising clients not to panic.
Borrowers could be Brexit winners, though.
For instance, low interest rates benefit homeowners who want to refinance mortgages, as well as homebuyers. Brexit might hold mortgage rates down for longer or even push them lower.
A falling British pound against the dollar also is good news for U.S. travelers to the U.K.
New challenge for Charlotte banks
Charlotte’s large financial services sector is poised to be battered more than some other industries, experts say.
That’s because prolonged low interest rates could further challenge banks’ ability to grow profits. In addition, businesses faced with economic uncertainty could be less likely to increase borrowing, further crimping banks’ revenues.
The biggest U.S. banks will be hit hardest, because they could face higher costs and weakened capital markets activity, according to a report last week from Keefe, Bruyette & Woods.
In the long term, the impact will be a wash for the banks, but they might face revenue and expense challenges during the two years it could take Britain to finalize its exit, according to the report.
Bank of America, which like other banks continues to focus on cutting costs, said in a memo to employees Friday that it expects to to get a clearer understanding in the coming months of what Brexit will mean for the company and its presence in Britain.
The U.K. is home to one of Bank of America’s four principal offices, according to a securities filing in February, in addition to offices in Charlotte, New York and Hong Kong.
“It is to our advantage that we work in an organization that has a long track record of thriving on change – be it regulatory, market or strategic,” Alex Wilmot-Sitwell, head of Bank of America Merrill Lynch’s European arm, said in the employee memo.
The firm expects during coming months to gain a clearer understanding of “the decisions that we will need to make” before Britain’s exit is finalized, he said.
Bank of America declined to disclose the size of its workforce in Britain. But the Keefe, Bruyette & Woods report calculated 5,545 U.K. employees at the bank’s Merrill Lynch operations as of Dec. 31.
N.C. exporters could be hurt
Vitner, the Wells Fargo Securities economist, said a slumping pound against the dollar is one Brexit byproduct that could hurt exporters in North Carolina and elsewhere in the U.S.
North Carolina exports about $1 billion a year to the U.K., the state’s seventh-largest export market, Vitner said.
“It’s not as if exports are suddenly going to drop to zero,” he said. But a rising dollar could make exports to the U.K. less competitive, which also could hurt manufacturers, he said.
“If the pound falls 10 percent relative to the dollar, it means when a British firm buys something from an American firm they have to pay 10 percent more for it,” Vitner said.
Despite Friday’s market shocks, UNC Charlotte economics professor John Connaughton doesn’t expect dramatic longterm impacts on the Carolinas. He expects some of the currency fluctuations to quickly even out.
“From my perspective,” Connaughton said, “I think this has been way overblown.”
U.K. companies in Charlotte
Brexit also raises questions about U.K. companies with operations in Charlotte.
Mecklenburg County was home to 120 companies with U.K. headquarters as of last year, according to the Charlotte Chamber. The report said those companies employ 6,038 people.
Jeffrey Hay, a managing partner of the law firm Womble Carlyle, said any company in Charlotte that does business in the United Kingdom will be affected to some degree by the vote. But the exact impact remains uncertain, he said.
“Nothing really is going to happen for a couple of years,” Hay said. “Companies have time to analyze how this is going to work.”
Staff writer Keith A. Larsen contributed.