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CBI / PricewaterhouseCoopers Financial Services Survey - September 2009
Source:
PricewaterhouseCoopers
Author name:
PwC financial services
Published:
10/28/2009
Summary:
PwC's quarterly survey shows a welcome improvement in sentiment. While this owes a lot to the improving economic outlook and a sense that the worst of the crisis may be past, levels of business remain subdued for many sub-sectors. In the short term, the industry still faces several significant hurdles.
Executive Summary
- Financial services is enjoying an unmistakable improvement in confidence
The survey shows welcome and unmistakable signs of recovery in financial services sentiment, which reaches its most positive level since 2004. Overall volumes of business are also reported to have grown for the first time in two years. This is not to say that all is blooming in the financial services garden, but it does show that there is growing clarity around the industry's medium-term outlook. Some institutions may still face a threat to profitability, but they are at least able to quantify the potential impact with a greater degree of certainty than before.
Most sub-sectors of financial services are feeling optimistic, with securities traders and investment managers particularly upbeat after the recent rally in equity markets1. All the same, some wide variation remains between the sectors. The optimism of banks and insurers is tinged with caution, and building societies continue to feel pessimistic.
- The outlook may be improving, but the crisis is still seen as having caused long-term damage
Respondents increasing take the view that the financial crisis is unlikely to worsen. The industry is reassured not only by stronger securities markets, but also by improved money market liquidity2 and a more stable housing market3. Furthermore, there is an increasing consensus that the UK economy will grow in 2010, albeit slowly4.
Even so, there is no real expectation that the UK financial services industry will return to the buoyant position it occupied three or four years ago. Underlining this view, more than two-thirds of those surveyed continue to feel that the financial crisis has damaged UK competitiveness.
- The industry still faces considerable challenges. Cost cutting remains a key focus
Even if the outlook for financial services is improving, the industry faces a number of short-term challenges. First, forecasts for business volumes remain tentative in several sectors, and are negative among insurers. Second, banks and building societies' non-performing loans continue to grow. Third, many sectors face increasing pressure on profitability. And fourth, concerns about new regulation and the costs of compliance are on the rise.
These challenges mean the industry's growing optimism retains a degree of caution. This manifests itself in a number of ways. There is a near universal focus on customer retention and cross-selling and cost control remains a key priority. Most notably, headcount is falling across most areas of financial services. Things may be looking up, but that does not mean that the autumn will be a happy period in every corner of the industry.
1 'FTSE hangs onto 11-month high', Financial Times, 14.09.09
2 'High levels of liquidity fuel gains for equities', Financial Times, 12.09.09
3 ' House price bounce extends into August', Nationwide, 27.08.09
4 'UK Economic Outlook', PricewaterhouseCoopers, 14.07.09
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