Financial firms – profits gloomiest for 17 years

According to a leading survey released today, financial services firms are the gloomiest they’ve been for 17 years in terms of profit growth in the next quarter.

Financial services firms are all forecasting income, business volume and profitability to decline in the next quarter as the credit crunch in global markets takes it toll.

The quarterly survey by the Confederation of British Industry (CBI) and consultants PricewaterhouseCoopers (PwC) showed a balance of 14% of firms predicting a fall in profitability in the final quarter of 2008 - the weakest expectation since September 1990.
The survey was conducted between August 22 and September 5 and was based on 89 respondents.

The survey illustrated that profits held up in the third quarter better than firms had anticipated and a balance of 14% of companies reported a lift in profitability - the highest since June 2006.

Ian McCafferty, CBI chief economic advisor, said there’s a stark contrast between the respectable growth noted by the sector over the last quarter and the difficulties it expects in the coming months. He added that the credit crunch is expected to “put a squeeze” on businesses.

On the positive side, the survey showed that companies still anticipate taking on more staff and training, marketing and IT investment plans are also holding up.

Banks reported business volumes increased quicker than anticipated in the third quarter but expectations for the final quarter are the weakest since June 1991.

Life insurers said their profits increased at the fastest rate in the survey’s history, helped by a significantly decline in costs.

Fund managers were negative about their present business situation, with declines in volumes last quarter coming as a shock with managers predicting that the trend will continue next quarter. With costs increasing and incomes dropping, fund managers reported their first fall in profitability since March 2006.

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