Banks report drop in business as Brexit uncertainty begins to take toll
British banks have seen their first drop in demand in five years as Brexit uncertainty, regulation and market volatility take their toll.
The latest financial services survey by the Confederation of British Industry (CBI) and the accountants PricewaterhouseCoopers showed just 24% of firms reported a rise in business volumes in the three months to December, compared with 32% having experienced a decline. The resulting balance of -7 percentage points – a reversal from +12 in the previous quarter – marks the first contraction in demand since September 2013.
The decline is expected to continue, with 20% of firms anticipating a further drop in business volumes over the coming quarter, with 12% forecasting a rise, a balance of -9 – the weakest outlook since December 2009.
The report said the pessimistic outlook was in line with “subdued prospects for the wider UK economy”, given weak wage growth and the impact that Brexit uncertainty has had on investment.
“A combination of macroeconomic and Brexit uncertainty, regulatory compliance and global market volatility are taking a toll on the UK’s financial services sector,” the CBI’s chief economist, Rain Newton-Smith, said. "Financial services are a bell wether for the wider economy. The persistent weakness in optimism and the deterioration in expectations sound a warning for the outlook,” she said.
The news comes as big US banks are expected to reveal the scale of bonuses, with Wall Street lenders reporting their 2018 full-year earnings.
Citi will be the first to report today, followed by Wells Fargo and JP Morgan tomorrow, and Bank of America and Goldman Sachs a day later. Morgan Stanley will cap off the week with its report on Thursday.
While investors will be keeping an eye on profit figures, staff will be waiting to hear how much they stand to pocket in bonuses. But pay experts say this year’s bonus pools won’t be worth writing home about. “It’s not a year of major increases,” said Todd Sirras, a managing director and partner at the consultancy Semler Brossy.
JP Morgan’s total bonus pool is set to rise 3% overall. Within the business, investment bankers will benefit from a “mid-single digit” rise in their own incentive pot, according to sources.