British banks have suffered their first drop in demand for five years as Brexit uncertainty, regulation and market volatility took their toll.
The latest CBI/PwC Financial Services Survey showed the financial services sector had a difficult end to 2018, with just 24% of firms reporting 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 marks – a reversal from +12 in the previous quarter – is the first contraction in demand since September 2013.
The decline is expected to continue, with 20% of firms predicting a further drop in business volumes over the coming quarter, versus 12% forecasting a rise, a balance of -9. That is 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.
Newton-Smith said the survey results should serve as a warning shot about the UK economy. “Financial services are a bellwether 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 bankers bonuses as Wall Street lenders report their 2018 full-year earnings.
Citi will be the first to report on Monday, followed by Wells Fargo and JP Morgan on Tuesday, and Bank of America and Goldman Sachs a day later. Morgan Stanley will cap off the week with its own report on Thursday.
While investors will be keeping an eye on revenue and 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,” Todd Sirras, a managing director and partner at pay consultancy Semler Brossy, said.
JP Morgan’s total bonus pool is due to rise 3% overall. Within the business, JP Morgan’s investment bankers will benefit from a “mid-single digit” rise in their own incentive pot, according to sources.
It may be nowhere near the levels seen in the lead-up to the financial crisis, when City workers netted near-30% jumps in bonuses year on year.
Some bankers may be in the firing line, however. Morgan Stanley has already started to slash jobs, according to reports. Bank bonus season tends to coincide with job cuts, as firms make swift changes at the start of the new financial year. “If cuts are announced, they usually occur in the first quarter,” Sirras said. “These businesses do move quickly with these initiatives.”