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12 month outlook remains positive for financial services

The latest industry survey from Scottish Financial Enterprise (SFE) and Capgemini shows that 42 per cent of responding financial services companies expect their business prospects to improve in the third quarter of 2007. This is lower than was reported in the previous survey however the majority of companies expect an improvement in business confidence over the next twelve months.

Most respondents of the survey (61 per cent) have continued to see business volumes increase in Q2 2007 although this is anticipated to level out in the next quarter. 42 per cent of companies report that employment levels rose while the same ratio anticipates further headcount increases in Q3 2007. Competition is now the biggest factor that is likely to limit business, highlighted by 85 per cent of respondents, while level of demand and customer confidence also continue to be concerns.

The Q2 2007 survey reports that:

• A majority of respondents (55 per cent) reported level business confidence for the third quarter, compared with the last survey in which the same number expected prospects to improve

• Looking further ahead, more than half of respondents expect business prospects to improve over the next 12 months

• 61 per cent of respondents reported increased business volumes in Q2 compared to Q1 2007, which was in line with the expectations set in the last survey

• Most respondents within General Insurance, Life assurance and Pensions and Investment Management sectors expect that business levels will remain the same in Q3 2007

• The vast majority of respondents (90 per cent) reported level or improved profit margins in Q2 2007 when compared to the previous quarter

• All Banks and Building Societies, General Insurance, Life Assurance and Pensions, and Asset Servicing respondents forecast that profit margins will remain the same in Q3 2007

• 83 per cent of respondents reported an increase in turnover from Asia, 28 percentage points higher than in Q1 2007

• 60 per cent of respondents forecast an increase in turnover from the US however one in five expect reductions in that market

• More respondents (81 per cent) are anticipating static business investment for the third quarter

• The majority of respondents report level or increased employment numbers for Q2 2007 compared to the previous quarter

• While the employment outlook remains positive overall for Q3 2007, 16 per cent of businesses expect headcount numbers to fall

• None of the Banks and Building Societies respondents expect employment levels to increase in the next quarter

• The top three concerns for respondents remain the same as those reported in the last survey - competition, level of demand and customer confidence

Gordon Arthur, SFE’s Interim Chief Executive, said: “The financial services industry in Scotland continues to have a confident 12 month outlook, however some pressures on demand and margins in the short-term have resulted in a levelling out of confidence for the third quarter. Our survey indicates that the industry is well positioned to see growth in the year ahead in what is a very competitive global market place.”

Rosemary Stark, Capgemini Vice President, Financial Services, commented: “While turnover expectations are steady from within Scotland and the Rest of the UK, the survey shows a marked increase in the turnover delivered from Asia. The forecast for Asia continues to be very positive for the quarter ahead, while the contribution anticipated from the US market shows a much more mixed picture. The importance of both regions highlights the increasingly global interests of the financial services industry in Scotland.”

View the Q2 2007 Quarterly Survey findings in full.

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