Finance Firms See First Recovery Signs in Two Years, CBI Says

By Poppy Trowbridge

Oct. 5 (Bloomberg) -- U.K. financial firms see signs of recovery and banks report feeling “more confident” for the first time since the global economic crisis began in 2007, according to a survey by the Confederation of British Industry and consulting firm Pricewaterhouse Coopers LLP.

Overall business volumes across the financial-services industry rose in the three months to September, 32 percent of those surveyed said in a report released today. For the first time in two years, more respondents reported seeing a rise in business volumes, than a decline, according to the report. Still, 24 percent of respondents said business fell in the period. Securities traders and investment managers saw “strong” volume growth, according to the report.

“Signs of a brighter outlook are appearing in the financial-services sector,” said Ian McCafferty, the CBI’s chief economic adviser. “Business volumes have increased for the first time since the onset of the credit crunch. This is concrete evidence of the gradual path to recovery.”

Britain is pulling out of its worst economic slump in at least a generation as consumer confidence improves and mortgage approvals pick up. The International Monetary Fund raised its forecast on Oct. 1 for U.K. economic growth next year.

While financial companies are more optimistic about the future, they remain worried a lack of demand will crimp expansion plans, according to the survey. As many as 60,000 U.K. financial jobs may be cut this year, McCafferty told journalists at a briefing on the report last week. That compares with 34,000 positions eliminated in 2008, CBI data show.

“Future demand is still a major concern for financial- services firms,” McCafferty said. “Further pain will continue to be felt in job losses and lower investment.”

Rising Bad Loans

Bankers’ optimism is also partly offset by concern about rising bad loans and the potential impact of new regulation.

The U.K.’s five biggest banks agreed last week to impose limits on bonus pay. HSBC Holdings Plc, Barclays Plc, Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Standard Chartered Plc accepted rules that restrict the amount they can devote to their bonus pools and how much they can set aside for deferred payments to executives and traders, adopting a program sketched out by the Group of 20 nations.

Provisions for bad loans at Lloyds, the U.K.’s biggest mortgage lender, have already peaked Chief Executive Officer Eric Daniels said in August. The bank had provisions of 13.4 billion pounds ($21.3 billion) in the first half. RBS reported an unexpected first-half loss that month after setting aside 7.52 billion pounds to partly cover bad loans.

Lloyds and RBS have agreed to insure about 576 billion pounds of risky assets with the government. HSBC, Europe’s biggest bank, avoided a government bailout, even after posting $67 billion of provisions for bad loans in the past 3 1/2 years.

U.K. Competitiveness

There’s “no real expectation” that the U.K. financial- services industry will return to the buoyant position it occupied three or four years ago, according to the CBI. Sixty- six percent of those surveyed said the financial crisis has damaged the country’s competitiveness.

The CBI surveyed 89 companies, including insurers, banks, building societies, securities and commodities brokers, private equity houses and investment management firms, from Aug. 19 to Sept. 2.

To contact the reporter for this story: Poppy Trowbridge in London at ptrowbridge@bloomberg.net