- More Financial Services profit warnings have been issued so far in 2020 than in the whole of 2019
- 86% of Financial Services profit warnings in the first seven months of 2020 cited COVID-19
- FTSE Banks, Finance and Credit Services and Non-Life Insurance companies are showing the most strain, while asset management and investment banking are more insulated
UK-listed Financial Services Firms issued 42 profit warnings in the first seven months of 2020, 36 of which cited the impact of the COVID-19 pandemic, according to the latest EY analysis of UK profit warnings. This means a quarter (25%) of UK-listed Financial Services companies issued profit warnings between January and the end of July this year. This rise in the number of warnings equates to a 133% year-on-year increase (just 18 profit warnings were recorded between 1 January and 31 July 2019), and already surpasses the total number of profit warnings issued by the sector in the whole of 2019 (29).
There were 13 COVID-19 related profit warnings issued in the first quarter of this year, and a further 23 recorded in the subsequent four months.
Retail-focused sectors showing increased signs of stress
Retail-focused financial services companies – FTSE Banks, Finance and Credit Services, and Non-Life Insurance – are showing increased signs of stress. Together, 23 companies from this group (47%) issued 27 profit warnings in the first seven months of 2020, which is more than double the total number of profit warnings the group issued in the whole of 2019 (11). Twenty-one of the profit warnings from this year have cited COVID-19 as the reason for a material downgrade in expected profits.
Whilst not immune, the FTSE Investment Bank and Brokerage sector - including the Asset Management sub-sector - fared better, with 15 companies issuing profits warnings, which represents 15% of this sector.
Tom Groom, UK Head of Financial Services Strategy and Transactions at EY, comments: “The economic impact of COVID-19 continues to hit the financial sector, with increasing numbers of the UK’s largest City firms reporting pressure on their bottom line. 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. As people’s jobs and finances are threatened by the pandemic, it is unsurprising that the banks, finance companies and insurers are seeing a particularly high volume of profit warnings.
“As financial services firms navigate through the path to economic recovery, it will be vital that boards are ready to take quick and decisive action to reshape their business models and create cost savings where necessary.”
Notes to Editors
- EY has been tracking UK profit warnings for over twenty years
- There are 154 Financial Services Firms monitored in EY’s analysis of UK profit warnings
- This release covers profit warnings up until 31st July 2020