Shareholders in UK banks have seen their share prices smashed, as fear and uncertainty reign in the aftermath of Britain's decision to leave the European Union last week.
And it offers a valuable lesson for shareholders in Australia's big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
Here's a brief snapshot of the carnage in financial companies on the UK market overnight:
| Company | Price fall |
| OneSavings Bank PLC (LON: OSB) | -33.1% |
| Shawbrook Group PLC (LON: SHAW) | -30.0% |
| Virgin Money Holdings (UK) PLC (LON: VM) | -25.5% |
| Barclays PLC (LON: BARC) | -17.4% |
| Royal Bank of Scotland Group plc (LON: RBS) | -15.4% |
| Close Brothers Group plc (LON: CBG) | -14.0% |
| Schroders plc (LON: SDRC) | -13.7% |
| Legal & General Group Plc (LON: LGEN) | -11.4% |
| Braveheart Investment Group plc (LON: BRH) | -10.2% |
| Hargreaves Lansdown PLC (LON: HL) | -9.0% |
| Lloyds Banking Group PLC (LON: LLOY) | -9.0% |
| St. James's Place plc (LON: STJ) | -8.1% |
| Investec plc (LON: INVP) | -7.2% |
| Provident Financial plc (LON: PFG) | -6.7% |
| Standard Chartered PLC (LON: STAN) | -6.7% |
Source: Google Finance
It seems clear that investors are worried about the UK economy falling into a recession and the various impacts on the banks the Brexit could cause.
It's an interesting lesson of what could happen should Australia head into a recession – and how leveraged banks are to Australia's economy.
We haven't had a recession in 24 years (the last was in 1991/92) in Australia, so it can be difficult for many investors to envisage the share price of say Commonwealth Bank losing a fifth of its value in a single day.
And for investors with a majority of their portfolios spread across the big four – they should realise that they are not diversified or protected against a single event such as a recession. Holding some defensive stocks in your portfolio would offset some of the losses from any bank holdings.
Foolish takeaway
If your portfolio or SMSF is chock-a-block full of bank shares, now might the perfect time to look at other alternatives, including defensive stocks as we outlined earlier today.
