Banking firms see improved profitability

ACTIVITY in the financial services sector stagnated in the first three months of the year but companies experienced improved profitability for the third successive quarter, according to a new survey published today by the Confederation for British Industry (CBI) and accountants Pricewaterhouse Coopers (PwC).

The quarterly report of Britain’s financial services industry also reveals that firms within the sector are broadly optimistic about activity and profitability over the coming three months.

The net 1 per cent of firms that reported rising rather than falling business volumes was much better than the anticipated -13 per cent. Both banks and security traders experienced falls in business volumes of -19 and -67 per cent. However, both of these forecast a bounce back over the next quarter. Generally, 48 per cent of financial services companies expect a rise in activity, although it remains well below pre-crisis levels.

The fall in employment levels within the sector is also forecast to continue and the CBI estimates that around 10,000 jobs were lost in the first quarter of the year and expects 7,000 jobs to be slashed in the coming three months.

Encouragingly, financial services companies say they are planning to increase capital expenditure on information technology. However, fears over the future regulatory environment have driven firms to ratchet up spending on compliance. All banking respondents said that they anticipate spending more on regulatory complicance over the next year compared to the past one.

Andrew Gray, UK banking advisory leader at PwC, said: “Regulatory pressure is one of the most significant concerns.”

But in terms of employment, regulation could be a positive factor. Pars Purewal, UK asset management leader at PwC, said: “Investment managers are expecting to employ more staff during the next three months to prepare for UCITS IV and to cope with the increasing strain regulation is putting on back and middle offices.”