As Scotland decides, traders eye financials

The referendum on Scottish independence will take place on 18 September 2014. As a result, a number of stocks have come under pressure; but with uncertainty comes opportunity. 

RBS logo
Source: Bloomberg

Scotland has a thriving financial services sector but the upcoming referendum has led to a number of finance houses voicing concerns over an independent country. Lloyds, Royal Bank of Scotland, and Standard Life, all headquartered in Edinburgh, have indicated plans to draw up contingency plans in the event of a ‘Yes’ vote.

The UK government has a 25% stake in Lloyds and an 80% stake in RBS. Both banks have stated they would consider relocating their headquarters to London if Scotland were to leave the United Kingdom. Standard Life has also voiced a similar stance. A ‘Yes’ vote could lead to a drop in the book value of assets that are held by the financial institutions, not to mention the question of what currency the new state would use. Alex Salmond claims an independent Scotland will keep the British pound but a number of leading politicians from the ‘Better Together’ campaign stated that the new independent state will not be allowed to retain the pound.

The beginning of a rise for the ‘Yes’ vote came after Alex Salmond won the second debate against Alastair Darling, which took place in late August 2014.

RBS is trading at 336p. The stock is hovering above its 200-day moving average of 333p and if uncertainty persists, the stock could target 320p.

Lloyds has lost over 3% today. The stock is currently trading at 71p, with the 200-DMA acting as resistance at 77p. If the ‘Yes’ campaign builds on its momentum, the stock could go as low as 67p.

Standard Life is trading at 404p. The pension fund manager has more clients in the UK than it does in Scotland, and further rumblings of independence have dragged the share price to 385p.

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