- Ahead of the second UK lockdown, listed financial services firms had issued 51 profit warnings in 2020
- 88% of financial services profit warnings cited COVID-19 as the reason for the material downgrade in performance
- Profit warnings from non-life insurance firms have experienced a six-fold increase compared to the year before
Ahead of the UK’s second national lockdown on the 5th of November, UK listed financial services (FS) firms had issued 51 profit warnings in 2020, with 44 citing the impact of the COVID-19 pandemic as the reason for an expected fall in profits, according to the latest EY analysis of UK profit warnings.
As at the start of the second lockdown, the number of FS profit warnings issued so far this year was already 76% higher than the number of profit warnings issued in the whole of 2019. The 51 profit warnings have been issued from 41 companies, equating to 28% of UK-listed financial services companies.
Non-life insurance, banks and consumer lending see the biggest rise in profit warnings
While the highest number of profit warnings from the financial services industry comes from Investment Banking and Brokerage Services, the increase in this FTSE sector from last year to this is modest. Ahead of the second lockdown, Investment Banking and Brokerage Services recorded 20 profit warnings in 2020, surpassing its 2019 total of 18. This is an increase of 11% which is well below that of other FTSE sectors within financial services.
The biggest increase in profit warnings continues to be from FTSE sectors with a retail focus; Non-life Insurance, Banks and Finance and Credit Services.
In 2019 there was just the one profit warning from a Non-life Insurance company, while in 2020, up until the second lockdown, this increased six-fold. Consumer lending, a sub-sector of FTSE Finance and Credit Services companies, experienced a three-fold increase in profit warnings from four in 2019 to 13 this year. In the same time period, profit warnings for FTSE Banks more than doubled, from three to eight.
Tom Groom, UK Head of Financial Services Strategy and Transactions at EY, comments: “As a whole, despite a flood of profit warnings this year, the UK financial services industry remains relatively resilient due to it entering the crisis well capitalised. However, the outlook is far from rosy and we are seeing more strain in some of the sub-sectors most impacted by the effects of the pandemic. The extensive impact of COVID-19 within the travel, leisure and hospitality sectors has had a direct effect on the non-life insurance sector, with claims related to event and travel cancellations and business interruption rising significantly this year.
“The pressure on firms is unlikely to be alleviated in the short-term now that England has entered a second lockdown and similar restrictions remain in place across the UK, meaning challenges around profitability could be exacerbated further. COVID-19 has also impacted spending habits this year, and research* is showing that people are being more careful with their finances and trying to save more. In the short-term, this places financial stress on firms due to consumers borrowing less. However, as pressure on consumers continues, and as and when stimulus measures taper away or are withdrawn, consumer credit companies are likely to be impacted further by an increasing number of borrowers unable to make repayments.”
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 the markets closed on Thursday 5th November 2020
- * Research from EY’s latest Future Consumer Index