MS Morgan Stanley

By Sara Schaefer Muñoz, Jenny Strasburg and Giovanni Legorano 

European banks took a beating Friday-- Barclays PLC fell as much as 30% at one point--as lenders were slammed by widespread market uncertainty after the U.K. voted to leave the European Union.

"Financial sectors were really expecting a 'remain,'" said Joseph Dickerson, an equities analyst with investment bank Jefferies International. "We are now entering a long period of uncertainty."

British Prime Minister David Cameron said Friday morning he would step down.

Although many banks recovered somewhat from early lows, at midmorning in London, Barclays was down 18%. Other investment banks had fallen by double-digit percentages as well.

Shares of Switzerland's Credit Suisse Group AG were trading down 11%, and Standard Chartered PLC was down around 6%. Shares in Germany's biggest lender, Deutsche Bank AG, were down 14%.

HSBC Holdings PLC, which is seen as somewhat protected from the EU exit because it has significant Asian operations, was down roughly 4%.

Spain's Banco Santander SA, which has significant exposure to the U.K. through its Santander U.K. unit, was also pummeled. Its share price was down 18% in early morning trading,

A number of big banks said Friday they are prepared to shift people and operations out of London as necessary, but they need more information before they begin major moves.

Bank executives said most trading systems held up well overnight as voting results rolled in, even as currencies-trading volumes out of Asia surged to around four times normal volumes, they said.

London trading desks, however, reported a sharp slowdown by midday Friday, with liquidity for trades decreasing as investors clung to their cash amid uncertainty. But bank executives said there was no pressure on interbank funding, which is crucial to keep financial markets functioning. The Bank of England and the European Central Bank have made billions in funding available to prevent a 2008-style credit crunch in the case of a market shock with the exit decision.

Some financial executives sounded somber tones Friday about the U.K. decision. Analysts did, too.

"I'm afraid that this is not such a good day for Europe," Deutsche Bank Chief Executive John Cryan said in a statement. "At this stage, we cannot fully foresee the consequences, but there's no doubt that they will be negative on all sides."

J.P. Morgan Chase & Co. CEO Jamie Dimon, with asset-management chief Mary Erdoes and corporate and investment bank head Daniel Pinto, told employees in a joint morning note that the U.K. vote was a "seminal moment" that could cause the bank to move employees and restructure parts of its business. The details can't yet be known, they wrote, and for now client relationships are unchanged.

The U.S. bank has 16,000 employees in the U.K., the executives wrote: "Regardless of today's outcome, we will maintain a large presence in London, Bournemouth and Scotland, serving local clients as we have for more than 150 years.

Former Deutsche Bank co-CEO Anshu Jain, who since leaving the German bank last year has been advising financial firms including online lender Social Finance Inc., known as SoFi, said Friday the U.K.'s exit presents "heightened levels of complexity and uncertainty to financial institutions and markets alike." The task of maintaining stability, confidence and unhindered trading poses new challenges to policy makers, Mr. Jain said.

European lenders heavily dependent on investment-banking revenues carry some of the highest post-Brexit risks for investors, J.P. Morgan Chase & Co. banking analyst Kian Abouhossein said in a note Friday morning. He warned that UBS Group AG, Credit Suisse and Deutsche Bank could be among those hardest hit if companies pull back on issuing securities and volatility continues to rattle markets.

"We see the uncertainty created by the outcome today weighing on capital markets activities," Mr. Abouhossein wrote.

He said that banks with concentrated exposure to the U.K. credit markets, including Santander, Barclays, Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC, have new "material downside" to their earnings potential stemming from the Brexit vote.

Analysts have said an EU exit could damp U.K. economic growth and increase unemployment, and domestic banks could see personal and mortgage loans go bad.

The situation first thing Friday morning looked even worse for Italian banks. The majority of Italian shares failed to start trading at market opening in Milan. Trades didn't go through because investors were seeking to dump Italian shares at prices not matching the ones offered by buyers.

When orders did manage to go through, Italian banking stocks plunged. At midday, Intesa Sanpaolo SpA was down 19%, UniCredit SpA had lost 18% and Banca Monte dei Paschi di Siena SpA was off 12%.

Shares of French banks opened Friday morning more than 20% below their Thursday close, reflecting investor concerns that Brexit will hobble banks more than it will other companies. Shares of Société Générale SA were still around 18% down in late-morning trading. BNP Paribas SA and Crédit Agricole SA were down near 15%.

Both Société Générale and BNP Paribas played down the effects Brexit will have on their businesses, as they depend less than many European peers on the U.K. market. Still, both banks have significant operations in London.

Morgan Stanley multiasset investment strategists said U.K. banks could recover from recent lows, given how much they already feel amid pre-Brexit caution.

"While financials are likely to remain more volatile, U.K. banks had already underperformed significantly going into the referendum. We would therefore look for opportunities to add risk here, selectively," Morgan Stanley credit strategist Srikanth Sankaran said in a note Friday morning.

"We would therefore look for opportunities to add risk here, selectively."

Write to Sara Schaefer Muñoz at Sara.Munoz@wsj.com, Jenny Strasburg at jenny.strasburg@wsj.com and Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

June 24, 2016 08:54 ET (12:54 GMT)

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