• 15,000 already lost and another 15,000 could go by June CBI says conditions remain tough in financial services sector. Photo: Getty Banks and other financial services firms are expected to cut more than 30,000 jobs during the first half of this year as the turmoil in world markets and a slump in demand in the UK continues to undermine profits, according to a survey of the industry. With income levels dropping at a record rate across the sector, the industry is being forced to trim costs and cut jobs at the fastest rate since 1993. Around 15,000 jobs have already disappeared between January and March, and firms are expected to shed another 15,000 in the next quarter. The CBI, which carried out the survey, said investment plans and marketing budgets have also been heavily scaled back as banks seek to conserve cash and hunker down for a rocky 12 months. Ian McCafferty, the CBI's chief economic adviser, said: "Conditions remain exceptionally tough in the financial services sector, and have not been helped by equity markets having fallen further since our last survey in December. "Sharp drops in revenues and profitability are causing continued suffering, while business volumes remain very weak. Firms are making heavy cuts to staff numbers and investment plans to make savings and reflect weak demand." He said hopes last year that the government's rescue packages would boost confidence and trigger a resurgence in sales were misplaced. "Over the past six months any hopes of the pain easing off have been disappointed, but conditions in the sector are not uniformly bad, as many general insurers fared quite well." Sales of motor insurance and home insurance will hold up during the year, mainly because customers are forced by law or their mortgage lender to buy them. As a result general insurers expect to increase employment and continue to grow over the coming year. Banks, building societies and City trading firms face a much bleaker picture. PricewaterhouseCoopers, which sponsored the survey, said that while the banking sector had stabilised, it expected a further rash of mergers among building societies, and especially smaller ones. Dunfermline building society in the prime minister's constituency was the latest mutual to run into trouble. It invested in residential property schemes that have plummeted in value and wrecked its finances, and was taken over by Nationwide today. Andrew Gray, PwC's banking expert, said building societies that relied on wholesale funding were the most vulnerable. The CBI/PwC financial services survey asked a cross section of financial services firms how their business volumes fared in the three months to early March. Around 9% of firms said that volumes rose, while 56% said they fell. The balance of -47% marked a sixth quarter of steep declines and was worse than firms had expected, said the CBI. Banks, wrestling with low interest rates and slow demand from business and retail customers, have seen spreads - the difference between the interest rates at which financial institutions borrow and lend money - decline. The resulting cut in profits is expected to continue through the year, though the effects of the government's rescue funding may boost demand. Gray said: "While revenues and business volumes continue to decline in the banking sector, there is cautious hope for stabilisation in the coming quarter and hope that customer demand could pick up slightly, although this is a difficult area to gauge. With a continued squeeze on margins as well as ongoing pressure from non-performing loans, overall profitability has been at a historically low level." Business sentiment slumped, as a balance of 34% of firms said they were less optimistic about the overall business situation in the financial services sector than they were in December. Problems confronting banks and building societies were matched by stockbrokers and life insurers, which are struggling with a dive in business not experienced since the early 1990s. Andrew Kail, PwC's insurance expert said: "Life insurers are reporting the lowest scores for 20 years on the value of new business. Commercial, retail and overseas customer activity are all following a downward trend and overall profitability has also fallen. Life companies are focusing all their effort on reassuring and retaining their existing customers and as a result are cutting costs."Banks and finance firms to axe 30,000 jobs in six months
• CBI says cuts are heaviest since 1993
Monday, 30 March 2009
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