Financial services executives believe business conditions will bottom in 2009 before a recovery in the sector and broader economy occurs next year, according to a new study from KPMG LLP.
About 70 percent of the 130 executives polled believe revenue and profitability in the financial services sector will improve in 2010, according to the business climate survey conducted by the audit, tax and advisory firm. However, respondents were split about whether a recovery among financial firms will lead or lag a rebound in the broader U.S. economy.
The financial services sector has been among the hardest hit by the credit crisis and ongoing
recession that began in late 2007. Major financial firms such as American International Group Inc.,
Citigroup Inc. and
Bank of America Corp. have received billions of dollars in government aid amid the market downturn.
Financial firms have been struggling with mounting losses across nearly all types of consumer and commercial loans as more customers fall behind on repaying debt. Companies have also been forced to sharply cut the value of certain investments as demand has waned for products such as securities backed by pools of risky mortgages.
More than half of the executives surveyed said the downturn made it more difficult to raise capital or receive financing to operate businesses.
Late last year at the peak of the credit crisis, the government stepped in to support financial firms by launching the $700 billion Troubled Asset Relief Program, which provided money to banks and other financial firms that had seen funding sources dry up after the collapse of Lehman Brothers Holdings Inc. The government also launched other programs to help reduce funding costs for financial firms in an effort to restart the credit markets.
Among executives' biggest concerns are handling the risk of troubled assets, finding new revenue sources and raising capital, according to the survey.
More broadly, executives are looking for signs of stabilization in the housing market, improved consumer confidence and spending as well as job creation to boost the economy in the coming year.
The housing market, which began to collapse in 2007, has been one of the biggest reasons for losses at financial firms, and a major factor in the
recession. There have been signs of improvement, but a report Tuesday showed mixed data.
Construction of single-family homes rose for the fifth straight month in July, but applications for building permits — a sign of future activity — fell 2 percent.
Increased consumer confidence is also key to a recovery because their spending accounts for more than two-thirds of the economy. However, analysts say confidence is unlikely to grow significantly because of uncertainty about employment.
Many financial firms, like other companies, have been slashing staff in an effort to trim costs to maintain or improve profitability during the
recession.
Within the financial services sector, executives aren't expecting much recovery in the job market. While two-thirds of respondents said they have completed job cuts necessary to help reduce costs, only 30 percent expect the employment situation to improve during the next year. And about one-quarter of executives see the job situation in the financial services sector worsening.
