What will pave the road to recovery?

Even though the Irish banking crisis began in 2008 it is still having major repercussions for the financial services sector. Bank of Ireland’s share price plunged 20% yesterday and Allied Irish was down 15%. The property crash that resulted in a 50 to 60% fall in house prices has left the banks with enormous bad debts and the subsequent £39 billion bailout by the Irish government has crippled the national finances, the budget deficit will be 32% of GDP this year.

Ireland has been left with no option but to ask the EU for assistance which could add up to £77bn. This uncertainly is now spilling over into the world’s financial markets and European and Asian shares are sharply down.

One thing is for sure, whether you are an interim looking for your next role or a provider looking to deliver assignments, we are all hoping for a speedy recovery to the financial services sector. So the key question is, what are the critical success factors that will lead to a recovery?

I canvassed opinion last week from Chris Plumbridge, an interim Finance Director of many years experience and his view was threefold:

- The availability of credit/liquidity. For example, in the retail mortgage sector the key constraint is the availability of funds to lend – not qualifying borrowers or properties;

- A stable and predictable regulatory regime. Understandably, in view of recent events, regulators are concerned about financial services institutions’ solvency and risk management (amongst other things). However, if the solvency regime is too stringent then it will constrain those institutions with money to lend and/or invest and slow the pace of recovery;

- Confidence. Investors – particularly retail investors – tend to invest at or near market peaks. Any sign of returning confidence and returns will attract investment out of defensive investments (For example, cash) and back into equities and other risk-based investments.

I would be very interested to hear and debate the views of interim managers within our network on what they think the critical success factors will be for the recovery of the financial services sector.

Andrew McIntee is a Director and Head of Financial Services at Interim Partners

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