Higher profits blur picture of crisis-hit City

It is doubtful that the British industry of financial services will be able to keep trumping the same card to boost results: profits rebounded 23 percent in the last three months of last year after fees, commissions and premiums were increased by 12 percent. Employers organisation CBI and audit firm PricewaterhouseCoopers, who surveyed the sector, found that widening in risk interest rates, savings and trade and investment efficiency also added to the rise of gains.

But 30 percent of the City companies reported a fall in business volume, -5 percent comparing to the previous three months and the second negative quarter in a row. Customer numbers dwindled for financial institutions the most, with -21 percent, followed by overseas clients (-19 percent) and commercial companies (-11 percent).

Even so, more companies believe the curve will reverse and expect business activity to recover, a change of sentiment that had not been recorded since March 2012.

“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,” Matthew Fell, CBI director for Competitive Markets, said. Fell was cautious, though, as “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.”

In fact, while forecasts pointed at a loss of jobs of -9 percent in October to December 2012, the final drop was of -31 percent. CBI said headcount could fall again in the first quarter of 2013  by -25 percent.

Kevin Burrowes of PwC explained that, although banks reported a dramatic return to optimism, with the highest balance of respondents since 2004 feeling more confident than three months ago, “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.”

Burrowes admitted that “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.”