Liquidity crisis threat for Northern Ireland?

Arthur Cox says a potentially significant funding gap, sparked by Brexit, could return the property market “to 2008 levels” amid concerns that major banks won’t provide the liquidity to keep Northern Ireland growing.

Partner Kieran McGarrigle, who leads the firm’s finance team, outlined his concerns as two major global lenders, HSBC and UBS, announced they could each move 1,000 staff from the UK because of Brexit.

That, he said, raised the threat of a ‘domino effect’ that may lead to a significantly reduced financial sector in the UK.

“The RHI issue has rightly received a lot of attention politically, but it is not in itself going to cause an economic crisis,” he said.

“There is, however, a real possibility that a crisis could arise due to a lack of future economic liquidity.”

The issue is particularly pertinent to the province because of the way financial institutions are regulated, he added.

“The financial services sector is, quite rightly, a heavily regulated sector in the UK. However, much of the regulation originates from the EU, which we are about to leave.

“Currently, if a lender is regulated in the UK, they can operate across Europe, but will these businesses really stay in the UK after we leave the EU? This seems unlikely.

“Northern Ireland is in a unique position in that, although it is based in the UK, some of its major lenders operate from the Republic or other jurisdictions outside the UK. This could have serious implications for Northern Ireland going forward.

“Many of the property and debt transactions in Northern Ireland since 2013 have been financed by international lenders with a base in London. If those lenders re-locate post-Brexit, what appetite will they have for lending in Northern Ireland in the future?”

Kieran said the issue could plunge Northern Ireland back to crisis levels not seen since the financial crash almost a decade ago.

“We have seen at first hand the effect that a lack of liquidity can have following the banking crisis in the UK and Ireland,” he commented.

“The demise of Northern Rock, Lehman Brothers and Anglo-Irish Bank (to name but a few) created a liquidity crisis in Northern Ireland that stymied growth and deterred investors and purchasers; all of which are fundamental to a successful economy.

“We exited this crisis period with a significant number of debt portfolio transfers. The debt, which had in part contributed to the liquidity crisis, had a new owner and the economics of those transactions allowed assets to be moved in a way that created a more positive market in Northern Ireland.”

“Undoubtedly, Brexit will have a significant impact on this market, but it is currently unclear precisely what that impact will be,” he added.

“Our politicians undoubtedly have the skills and capabilities to meet this challenge, but it will require their focus if it is to be successfully navigated towards a strong economic future.”