UK financial industry restructuring to hit 43,000 jobs: CBI survey

The UK's financial industry is expected to shed around 43,000 jobs in six months as companies restructure to reduce cost and return to profitability, a survey commissioned by the Confederation of British Industry has found.

However, financial services firms in the UK saw profits increase in the three months to December with improved optimism, despite a further fall in business volumes.

Of the 94 companies that responded to the CBI/PwC survey, 25 per cent saw business volumes rise, and 30 per cent reported a fall. The –5 per cent difference represented the second consecutive quarterly decline and disappointed expectations of a return to moderate growth (+12 per cent), the survey pointed out.

The survey found that banks, insurers, asset managers and other finance firms have already cut around 25,000 jobs in the last three months of 2012 and a further 18,000 jobs are expected to be eliminated in the first quarter of this year.

''Companies managed to increase profits this quarter even though business volumes fell slightly,'' Matthew Fell, CBI director for competitive markets, said, adding, ''It's encouraging that firms are more optimistic about their business situation than they were last quarter and expect volumes to rebound strongly in the three months ahead.''

He, however, said, ''there is rising concern that staff shortages are likely to limit business and investment over the next year, as well as the challenge of raising finance.''

Business volumes fell across all customer categories with financial institutions registering the biggest decline of (-) 21 per cent, followed by overseas customers (-19 per cent), industrial and commercial companies (-11 per cent) and private individuals (-9 per cent).

The firms expect a 34 per cent growth in volumes next quarter, and 32 per cent of the companies surveyed are optimistic about the overall business situation than three months ago when they constituted 27 per cent. This is also the first rise in sentiment since March 2012.

Most financial companies expect the spreads to widen to 8 per cent with a 4 per cent reduction in total costs, a 12 per cent increase in income values, including from fees, commissions and premiums, a 6 per cent increase in income from net interest, investment and trading, and a 23 per cent rebound in profit, following last quarter's 6 per cent fall.

The number of people employed in the financial services sector fell 31 per cent in the last quarter, the third consecutive quarterly decline and headcount is expected to fall 25 per cent again next quarter, it said, adding that staff turnover was up 23 per cent during the previous quarter.

''Business volumes, income values and numbers employed all fell over the past quarter. But profitability was lifted by another widening in spreads, and banks were more optimistic about conditions than three months ago. Total costs fell strongly, for the first time since September 2010. But the unexpected fall in business volumes led to a slight increase in average operating costs per transaction,'' the survey noted.

''Finance houses saw business volumes grow unexpectedly over the last quarter, and at a faster pace than in the previous survey. Numbers employed also rose, in contrast to expectations of a decline. Headcount is expected to grow again but at a slower pace over the next quarter,'' Kevin Burrowes, UK financial services leader at PwC, said.

''The banks reported a dramatic return to optimism, with the highest balance of respondents since 2004 feeling more confident than three months ago, reflecting positive forecasts for revenue and profitability.  Although very welcome, banks made similar forecasts before, only to be disappointed.  Commercial business in particular failed to live up to its promise, declining during the last months of 2012.

''Banks are facing both a shortage of skills and a growing capital challenge.  The UK banking sector is well capitalised by European standards, but banks now expect the ability to raise finance to be a significant limitation on business during 2013.  This implies that their upbeat predictions for growth could be undermined by an inability to commit sufficient capital to lending.''

Life insurance companies reported strong growth in business volumes and income, lifting profitability. Numbers employed rose further, and life insurers plan to increase their IT budgets in the coming year relative to the past one.

General insurance volumes grew solidly, despite expectations of a third consecutive fall, and are expected to grow at an even stronger pace over the next quarter. Numbers employed rose for the fourth quarter running, and are expected to rise again in the next three months, but at a slower pace.

Insurance brokers saw stable overall profitability over the last quarter, with an expected growth in the three months to March. Business volumes fell over the last quarter, disappointing expectations of continued growth. However, volumes are expected to rise somewhat over the next quarter, said Jonathan Howe, UK insurance leader at PwC.

Optimism among investment managers rose for the fourth successive quarter as business volumes and incomes grew again. Numbers employed also increased, for the third quarter running, said Robert Mellor, hedge fund practice leader at PwC.

''Investment managers remain remarkably optimistic. Overseas business is growing, but it remains to be seen if predicted retail growth will materialize,'' he said, adding, ''In the current environment of economic uncertainty, but comparatively stable financial markets, it will be interesting to see if retail sales can improve on 2012's disappointing figures.'' The first quarter of 2013 will be crucial if the sector is to justify the strong optimism that has been its hallmark throughout 2012.

''Regulatory uncertainty is exceptionally high and is seen as a barrier to growth by 91 per cent of respondents; a striking response and the highest figure in more than twenty years of survey data. The sector also faces a particularly high level of uncertainty over the impact of new regulations. The final implementation of the alternative investment fund managers directive (AIFMD) remains frustratingly unclear, firms are waiting to see how the RDR reforms will affect their business, and the sector faces a range of emerging initiatives such as the EU's proposals on shadow banking,'' the survey pointed out.