Stabilising financial services sector expects spring bounce

PROFITS and business volumes in financial services are expected to rise sharply this spring after a "stable" three months to March, a key industry survey today reveals.

• Edinburgh's financial district: The industry is more optimistic as economy stabilises Picture: Ian Georgeson

The profitability of financial services businesses rose for the third consecutive quarter to this month, according to the latest CBI/PricewaterhouseCoopers report.

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Despite concern about red tape and remuneration crackdowns being at "an all-time high in the industry", the survey says in the next three months a positive balance of 48 per cent of firms expects a rise in business volumes.

This is the most positive outlook in the sector since March 2006 when the positive balance was 58 per cent. In addition, 34 per cent of firms – the highest balance since March 1999 – expect profitability to increase over the next three months.

Ian McCafferty, the CBI's chief economic adviser, said: "Activity in the financial services sector held steady in the last three months, and there are signs of better things to come. However, the picture remains mixed.

"Business grew in some areas, such as building societies, and fell in others, such as banking. Lending to private individuals rose a little, but lending to companies was down."

Lindsay Gardiner, head of assurance at PWC Scotland, said it was encouraging to see confidence growing again in the sector but that "they are not completely out of the woods, however".

He added: "Despite senior banking figures scoring political interference and too much regulation as key risks for the industry, there will clearly be more announcements to come in terms of regulatory reform, a review of remuneration practices and the potential for an internationally co-ordinated levy on the banks."

In conjunction with the Fraser of Allender think tank, PWC recently forecast a total of 16,500 job losses in the financial services sector over 2009 and 2010. It says "most" of these will go this year.

Today's CBI/PWC survey showed that when asked how their business volumes fared in the three months to March, 43 per cent of firms said volumes rose and 42 per cent noted that they fell. The positive balance of 1 per cent was better than the previously expected –13 per cent.

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Both banks and security traders saw business volumes fall in the past three months, but building societies and life insurers "experienced unexpectedly strong growth".

Andrew Gray, UK banking advisory leader at PWC, said: "Banks' confidence is continuing to rise amid predictions that volumes will show the sharpest increase for three years."

Things were more downbeat in general insurance, where optimism fell for the first time since September 2008, and firms saw a sharp decline in business volumes, income values and profitability.

Firms' investment plans for IT in 2010 are positive again (a balance of + 25 per cent), while those planning to spend more on marketing in the next 12 months has risen to a balance of +47 per cent, the highest for a decade.