Monday 18 May 2020 10:38 am

Coronavirus triggers profit warning spike for financial services businesses

UK listed financial services businesses have issued more profit warnings this year than in the whole of 2019 as a result of the coronavirus pandemic.

UK-listed financial services firms have issued 31 covid-19 related profit warnings so far this year, according to analysis from EY, representing 17 per cent of the Ftse financial services sector.

Non-bank consumer lending is the sector showing the most distress, with all but one of the eight warnings citing covid-19 as the reason for a downgrade in expected profit.

The sector has already issued double the number of profit warnings this year than it did in the whole of 2019.

The asset management and non-life insurance sectors issued the second-highest number of warnings (six each) in the first four months of this year, followed closely by the banking sector (five).

Financial services has not yet suffered as much as sectors such as travel and leisure where 70 per cent of firms issued a profit warning.

The retail sector and the industrial materials sectors have also been hit hard with 63 per cent and 61 per cent respectively of firms in those sectors issuing profit warnings.

The danger for financial services is a knock on effect of struggling businesses not being able to service their debt.

Tom Groom, UK head of financial services transactions at EY, said: “Covid-19 has resulted in health and economic challenges like none we have witnessed before. The impact on households and businesses up and down the country is already profound and may have long term ramifications for some.

“No sector has been immune, and we are seeing financial services firms issue profit warnings at a rate well above historic precedent, although many are coming from the smaller players.

“By and large financial services firms entered this period in a position of capital strength, having significantly built up reserves since the last crisis.

“This is helping the industry weather the storm and maintain a strong base of financial stability. However, the signs of stress on some of the UK’s largest firms cannot be ignored.

“Financial services firms will continue to monitor the level of warnings coming from the sectors that they lend to, invest in and insure, because what is very clear is that even the most diversified portfolios will be impacted.”