Financial services CEOs are prepared and staying focused on long-term growth objectives. KPMG
What would a global recession mean for the financial services industry? A recession in the next year looks increasingly likely and is certainly on the minds of financial services CEOs. We surveyed 356 CEOs globally across the financial services landscape, including banking, insurance and asset management for the KPMG 2022 Global CEO Outlook, to see how they are preparing for the near-term challenges while also looking out at their priorities and concerns over the coming three years.
Nearly all financial services CEOs we spoke with, 89 percent, agree a recession is inevitable in the next 12 months. Slightly more asset management (91 percent) and insurance (90 percent) CEOs predict a recession than banking CEOs (85 percent), but there is not much disagreement. The good news is the majority, 57 percent, believe the recession will be mild and brief. But that doesn’t mean there won’t be some economic pain. Earnings over the next 12 months could take a hit – half of financial services CEOs say it could be between 6 and 10 percent, while nearly a quarter think the impact could be greater, anywhere from 11 to 30 percent.
So how are CEOs responding? First, the prospect of a recession doesn’t come as a surprise to most of the financial services CEOs we spoke with — 76 percent say they anticipated it and have been planning accordingly. They are taking action to weather a downturn while not losing sight of what will drive growth in the long run.
Addressing costs is a must in what looks increasingly like a stagflationary environment. In addition, most financial services CEOs, 86 percent, told us they are managing rising costs both by increasing prices and reducing profit margins. The other side of the coin is productivity, and more than half say they are already focused on improving productivity and another third plan to make productivity a focus in the coming 6 months.
Geopolitical uncertainty is also weighing on the financial services CEOs we spoke with, and most all, 85 percent, are adjusting or planning to adjust their risk management procedures in response to shifting geopolitical dynamics.
Short-term risks aren’t dampening longer-term confidence
Financial services CEOs are clear-eyed about the near certainty of a recession and the impact it could have on their business. But it doesn’t mean they aren’t still confident about the future. In fact, confidence is up from a year ago – 72 percent are confident in growth prospects for the global economy over the next 3 years, 10 points higher than 2021 – and 19 percent are very confident. Even more, 83 percent, are confident about the growth prospects for their business, in line with last year’s level. Though, the level of confidence for their business may have dimmed marginally – the percentage of CEOs who are very confident declined to 27 percent from 35 percent in 2021.
A good indicator of business confidence is M&A appetite, and that remains strong. More than half, 53 percent, of financial services CEOs say they are likely to undertake acquisitions that have a significant impact on their organization. But they aren’t necessarily counting on M&A to drive growth – only 12 percent say it will be an important growth strategy, down from 32 percent in 2021. The CEOs we spoke with say strategic alliances and organic growth are more important to their growth strategies.
Read more: https://home.kpmg/xx/en/home/insights/2022/11/recession-on-the-horizon.html
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