In a recent study from advisory firm KPMG KPMG.UL, banking executives said the industry will recover slower than even the economy; a true statement that was good to hear, as some politicians and news outlets attempt to make it look like we’re in the beginning of some type of recovery, when there is a long way to go before that becomes a reality.
Close to 66 percent of banking leaders responding to the survey said banking and financial services would recover slower than the overall economy, which tells me people will have to get a longer term outlook on how long economic hardships will last, and plan accordingly.
The biggest challenges to the banking industry, according to executives, included managing risk and generating more revenue growth, as normal revenue outlets have dried up.
Surprisingly, raising capital was third among the challenges to the industry in the bankers’ eyes, but when you think of it it makes sense, because if you raise capital without risk management under control, the money will go toward attempts to survive rather than increasing revenue.
Even though the S&P Financial Services index has risen by over 10 percent since January, executives aren’t buying in to it being a lasting or real rally.
Banking leaders said what they are looking for to identify a lasting recovery are the real estate market strengthening and consumer confidence going up; both of which aren’t happening as of this writing.
The real estate market especially is far from showing signs it even close to recovery, and with re-sets over the next couple of years coming due, there’ll be enormous downward pressure all during that time. The one thing that could change that is if housing prices started to rise again, whereby existing loans could be rolled over. That’s highly unlikely to happen, and so we’re in for a long ride.
Almost 80 percent of those responding to the survey said even with these problems, they expect some improvement in 2010, seeming to say that they believe revenues will increase and profits with it.
While it looks like they’re contradicting themselves on answers, I think what they mean is even if new revenues are generated and profits increase, that’s not going to be enough to counterbalance the other negative factors involved in the equation.
You can see that from the last two quarters which solid profits were recorded, but did nothing to mitigate the condition of the industry.
