- 32% of global FS companies see stagnation for at least another year
LONDON, July 6 /PRNewswire/ -- The majority of global financial services
companies expect no return to growth until the first six months of 2010 or
even later, according to new Ernst & Young research published today.
Accelerating the change finds that while a third of the 125 global financial
services respondents expected some expansion this year, 34% of those polled
expect the return to growth to begin in the first six months of 2010, with 32%
believing it would be further out.
As an indication of just how deep the recession is impacting the financial
services sector, just over two thirds of those polled expect to increase the
amount of time they spend on securing the future of their business.
The industry was clearly taken aback by the ferocity and depth of the
downturn: 72% of respondents were surprised at the severity and 70% were
surprised by the speed of the financial crisis. Only 30% had seen any
improvement in their business over the last 12 months, compared to almost 50%
that had not.
Tom McGrath, managing partner of Ernst & Young's EMEIA financial services
business, comments: "The end of the recession and a return to profitability is
a tough one for any industry to call. But financial services are naturally
more cautious - and possibly more realistic - about when the return to
profitability might happen."
The reorganization of the industry will be fundamental and it will vary by
sector. However, managers are working hard to position their organizations to
emerge stronger when the recovery comes - but there may well be some more
casualties."
Pennies being pinched, as profitability continues to decline
What is clear is the business-changing impact that the recession is having on
the structure of financial services companies - and the toll it is taking on
their bottom lines.
The majority (70%) of institutions have permanently changed their risk
management strategy as a result of the crisis: 68% had implemented permanent
differences to their regulatory framework and over half (54%) have changed
their operating model. And it is easy to see why: almost six in ten financial
institutions have seen their profitability decline and 56% have seen overall
revenues decline in the same period.
If there is any silver lining, it is that 61% of respondents have had more
opportunity to improve cost cutting in the last six months. Four in ten also
plan to hive off their non-core or non-performing business, compared to five
in ten in a similar survey earlier in the year.
Keith Pogson, managing partner for Ernst & Young's financial services business
in the Far East, said: "Fierce competition, volatility in the capital markets
and business complexity are key concerns for any large enterprises, but they
weigh more heavily on global financial institutions."
Financial services clear on action from authorities
The sticky issue of pay and reward strongly divided respondents: 45% thought
it needed more regulation while just under a third disagreed.
Financial services were also found to be broadly supportive of national and
global initiatives aimed at stimulating the capital markets and easing the
impact of the recession. However, only a third believed that their government
should retain a stake in the financial services industry, with banking and
insurance respondents the most skeptical suggesting that the time for bailouts
may have come to an end.
Almost two thirds were inclined to agree that cooperation between
international governments had played a central role in helping domestic and
international economies in the last 12 months. Two thirds were supportive of
their national governments economic policies in the past six months and half
of the respondents believed their governments were powerful enough to solve
their economy's woes although a distinct minority (29%) felt they were
ineffective in the face of the global recession.
Carmine DiSibio, managing partner for Ernst & Young's Americas Financial
Services Office, comments: "The financial services industry has been battered,
but will certainly emerge from this recession stronger and healthier, with
more focus on risk management. As the industry recovers, we are likely to see
changes in operating models and regulatory frameworks. It's likely to be a new
world, and financial services firms will find their way together."
About this report
For this study, the Economist Intelligence Unit surveyed 569 C-suite and board
level executives. Respondents were drawn from across the world and across
industry sectors. Over half the executives polled worked for companies with
annual global revenues in excess of US$1 billion. The research was carried out
in June 2009.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory
services. Worldwide, our 135,000 people are united by our shared values and an
unwavering commitment to quality. We make a difference by helping our people,
our clients and our wider communities achieve their potential. For more
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Ernst & Young refers to the global organization of member firms of Ernst &
Young Global Limited, each of which is a separate legal entity. Ernst & Young
Global Limited, a UK company limited by guarantee, does not provide services
to clients.
This news release has been issued by EYGM Limited, a member of the global
Ernst & Young organization that also does not provide any services to clients.
SOURCE Ernst & Young
Katie Johnston of Ernst & Young LLP, +1-201-872-7194, Katie.johnston@ey.com
