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Profit warnings for financial services firms soar, says EY

Aug 24
Tags: Ernst & Young LLP
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Profit warnings for financial services firms soar...

A total of 42 profit warnings were issued by financial services firms in the first seven months of 2020, according to analysis conducted by EY.

The majority of those warnings - 86 per cent of them - cited the COVID-19 pandemic as a reason for the move.

What this equates to in practice is 25 per cent of all UK-listed financial companies publishing profit warnings between January and the end of July.

When compared to 2019, that’s a 133 per cent increase year-on-year, with the total so far already eclipsing the 29 that were recorded for the whole of last year.

FTSE banks, finance and credit services and non-life insurance companies are under the most pressure, EY’s analysis shows, while asset management and investment banking firms are more protected.

Tom Groom, UK head of financial services strategy and transactions at EY, said: “Since the financial crisis, banks, asset managers and insurers have all built up strong reserves and largely entered this period of economic challenge in a position of capital strength, but no sector has been immune, and the uptick in listed financial services firms issuing profit warnings is concerning.”

He added that it’s not surprising that banks, finance companies and insurers are having to issue profit warnings when jobs and personal finances are being particularly hard hit by the pandemic.

It will be up to boards to ensure they take quick and decisive action along the road to economic recovery in the coming months.

Otherwise business models will soon find themselves outdated and cost savings will not be sought when necessary, leaving financial services firms in a vulnerable position.

EY is one of the big four accounting firms and monitors 154 financial services firms.

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