Crunch squeezes finance sector back to 1991 levels

Jan 8 2008 by Alex Turner, Liverpool Daily Post

FINANCIAL services firms are feeling the impact of the credit crunch as business volumes fell to their lowest level since 1991, according to a report by the CBI and accountancy group, PricewaterhouseCoopers.

The CBI’s quarterly financial services survey painted a gloomy picture as 44% of firms recorded lower volumes, compared with just 10% who declared an increase.

The report detailed rising operating costs and a fall in business sentiment, with 49% of companies feeling less optimistic than they did in September.

A balance of 11% of firms also reported a drop in income from fees, commission and premiums, while income from interest, investment and trading fell at its fastest rate since the survey began in 1989.

Jon Seal, executive director of fund management firm Rensburg Sheppards, believes uncertainty is at the root of the problems faced by firms throughout the financial services sector.

He said: “We can see that the last half of 2007 was a very challenging environment, particularly in the property sector.

“One thing the equity market doesn’t like is uncertainty and there is more uncertainty on the horizon.

“There are fears over a hard landing for the US housing market, the effect of the credit crunch and the consequent weakening of sterling if interest rates fall over the next year.”

But Mr Seal, who heads Rensburg’s Liverpool office, sounded an optimistic note for the future.

“We are not seeing a major slowdown in business although investors are nervous,” he said.

“We are cautiously optimistic.”

His view was backed up by Tim Rigg, Bank of Scotland’s head of corporate banking for the North of England.

Mr Rigg said: “I think there is naturally caution about what is happening in the USA.

“But in the general commercial market, the £1m to £50m turnover businesses, I am hoping we won’t see a major downturn.

“The report sees that corporate lending is holding up and we are finding the same. We found the final quarter of 2007 as busy as any other quarter.”

Surveyed firms claimed a growth in profitability for the fourth quarter in a row, although this trend is not expected to continue into 2008.

Overall a net balance of 6% of firms said profits had risen. This was down from 14% in the previous report, but far better than the predicted balance of 14%.

alexturner