Almost half the banking sector's top executives say it has gotten easier to raise capital in the past six months — perhaps none too soon, considering their forecast for writedowns.
In a new KPMG LLP survey, 96% of chief executives and other senior bank industry officials said they expect the sector to get hit by heavy additional writedowns stemming from the real estate market, with 74% predicting the pace would be "more than normal."
Other red flags cited in the survey included writedowns of non-real-estate assets (for which the predictions are less alarming but still cautionary), the cost of new regulation and the persistence of high unemployment.
And yet, bank executives are generally bullish about the industry's prospects, with 57% agreeing that the sector is more profitable than a year ago and 75% saying they expect profitability to be even better a year from now.
"Clearly, there are still obstacles to a full-blown recovery," said Tony Anzevino, the partner in charge of KPMG's banking and finance practice. "However, the banks and financial services institutions that get a head start on preparing for the impending regulation and remain focused on growth opportunities in this environment may gain a competitive advantage."
In that regard, midsize and large companies are taking the most aggressive approach. More than 70% of executives at firms with annual revenue of $250 million or more described their current strategic emphasis as "investing for long-term growth," versus the less than 30% who said they were still "cost cutting for survival." For small firms, with revenue between $50 million and $250 million, only 56% of executives said they were investing for long-term growth.
Banks have been slower than nonbanks to escape cost-cutting mode, but the financial services industry on the whole has been getting stronger. Only 35% of all respondents said they were cost cutting for survival, down from the 41% who said so in a KPMG survey in last year's third quarter.
The most recent poll, intended to take the pulse of financial services executives about business conditions and a wide range of issues tied to the economic and regulatory environments, was conducted in April and May and reflects the responses of 134 CEOs and other "C-level" executives.
Compared with their nonbank counterparts, bank executives are taking a less aggressive approach to hiring. Only 45% expect of the 69 bank executives surveyed said they expect to increase head count at their companies this year, versus 55% of the 65 nonbank respondents.
But executives from both parts of the sector seem equally bullish on compensation, with 45% of bank executives saying they plan to increase their employees' salaries and bonuses this year (versus 48% of nonbank finance executives who plan to do so), and 43% of both groups saying pay will stay about the same.
Bankers were remarkably like-minded when it came to anticipating the top three drivers of revenue growth for the next three years. Traditional services were identified by 100% of the executives surveyed. The other two most commonly cited drivers were emerging technologies and merger-and-acquisition activity. Securities trading missed the cut for the top three, but was far more commonly cited than choices such as "improving economic conditions" or "fee-based income."
On regulation, the three changes that bankers said would have the greatest impact were in the handling of systemic risk, the creation of a consumer protection supervisor and stricter quality and transparency demands for capital.