Financial Services

Several high-profile acquisitions occurred in 2008 despite worsening economic conditions, government intervention and executive bonus scandals that plagued the industry. The acquisition of Merrill Lynch by Bank of America was the largest with a $50 billion price tag. The second largest acquisition was Wells Fargo’s buyout of Wachovia for $15.1 billion.

It’s unclear whether the industry will experience those types of buyouts in 2009 since executives in most sub-sectors are not overly optimistic about business prospects. The macroeconomic outlook does not offer the sector much cause for optimism. Low base rates and climbing unemployment suggests that 2009 could be tougher than 2008. In response, the sector is developing a new commitment to cost control with non-essential spending being cut. Many industry officials also expect to make further staff reductions during the year.

At least the insurance sub-sector is showing signs of prosperity in 2009. At this point, general insurers are more optimistic now than any time since 2005. The value of insurance premium income is reported to have increased for the first time in six quarters. Demand for general insurance is not greatly affected by the poor economy and business is expected to continue growing across personal and commercial lines. In addition, operating costs are being kept under control and this is the only sub-sector that is making a recruitment push.

Meanwhile, banking, life insurance, securities trading and investment management are facing huge hurdles in 2009. Banks still have an escalating number of non-performing loans in the retail and commercial arenas, life insurers are facing low levels of new business and overall profitability and the downturn in hedge fund activity continues to make its mark in securities trading. At the same time, investment managers are facing a significant reduction in profitability.

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