John Campbell, Sunday Express, 21 September 2008
September 25, 2008
(this article appeared in the Sunday Express on 21 September 2008)
TOUGH TIMES - BUT NOT THE END
John Campbell, Chairman of Scottish Financial Enterprise
It is difficult to get the right perspective on events of the last week. It started with another serious lurch in the United States, with the collapse of Lehman's and the sale of Merrill Lynch - but quickly, and unexpectedly, became a very domestic story.
I want to say something of how these two are connected and, most importantly, to try to give a view on what these seismic changes in multi-national companies might mean for the industry in Scotland.
Global crisis
‘Credit crunch' and wider bad news financial industry stories have been running for over a year, starting in the US, from where we first heard the problems of sub-prime mortgages. The crisis deepened across the Atlantic, with government stepping in to rescue critical mortgage companies Freddie Mac and Fannie Mae. And in a business that relies heavily on confidence, combined with being a business that has in recent years become increasingly global in nature, the problems spread fast.
It hit the proverbial ‘man/woman in the street' most memorably in the UK with the demise of Northern Rock last year. After scenes of people queuing to withdraw their money, and a period of uncertainty as the authorities grappled with devising the right approach to dealing with this unforeseen situation, it became clear that we were in for a period of considerable uncertainty.
Scotland's industry
Meanwhile, Scotland's financial services industry had quietly become an incredible success story. With a history dating back over 300 years, the last 10 years had seen a remarkable growth - a 60% increase in the industry. For a small northern European country it was an exceptional development. The growth happened when we saw the broadening out from traditional core business of banking and insurance to include asset management, investment banking, asset servicing, support services and other linked activity. Our own companies grew and became global, and we attracted overseas organisations to set up bases in Scotland. We created a highly skilled and experienced workforce.
Part of that change 10 years ago involved company takeovers. Just two examples - Scottish Widows became part of Lloyds TSB and Scottish Equitable became part of Aegon. Both retain a strong presence in Edinburgh, thriving in the city, and recognising the benefits of using a Scottish workforce.
I think it is vital to point this out. We have had difficulties before in the industry. It happens. Circumstances are different each time. The 2008 crisis is deeper, and part of that is related to the speed at which events happen worldwide.
But we have adapted in the past and we must focus on getting through this downturn to remain strong for the future. . I see some commentators talk about the takeover of HBOS as the start of the demise of our industry in Scotland. This is simply not the case, and we must do all we can to stop talking down our industry. As I said earlier, confidence is vital.
Lessons
I certainly agree that practices need to change, and lessons need to be learned. Some sections of the industry must accept their role in that. But the vast majority of financial services people and companies are professional and responsible.
Regulators and governments have also taken action to provide more protection for savers' money. They are continuing to monitor the global and domestic situation daily. They, like the industry, are dealing with unprecedented, fast moving, global markets.
While we cannot expect a return to stability in the industry for some time, what we most dearly need at this point is a reduction in volatility. There will be a time for deeper reflection later, but for now we need immediate reaction where necessary, but any intervention must be on the basis of clear logical reason and must not just be a knee jerk reaction to short term events.
And for the general user of banks, building societies, insurance and other financial services sectors, the message is similar. Turmoil and sudden takeovers are disturbing. When it affects historic, home grown companies they are also emotional, and we would rather they did not happen. But the boards of these companies are taking decisions that they firmly believe are right for the business in the environment in which they are operating.
Scotland has had a tough week, but we have a strong reputation in a global industry, and we must focus 100% on not letting that go. I will do all I can, working with industry, government and others, to continue to strengthen and grow our industry to ensure that we retain the confidence that investors have had in us for 300 years.
