Survey of Financial Institutions on Credit Crisis

The global financial crisis will lead to radical changes in the structure of the financial services industry with more financial institutions set to fail, according to a survey of financial institutions by international legal practice Norton Rose Group.

The survey of 195 respondents (comprised of financial institutions and other mainstream corporate entities) from 16 – 25 September 2008 canvasses the views of financial services professionals on the latest phase of the credit crunch.

Respondents believe that the crisis will deepen with 79% expecting more financial institutions to fail, 85% predicting increased regulation, 91% increased consolidation, and 38% expecting more state ownership of businesses in the sector.

Respondents revealed that the crisis has had a marked impact on corporate behaviour, as financial institutions have become more conservative in their approach to risk management (according to 75%), to credit approval processes (70%), and to due diligence (47%). They were also keener to recover losses and as a result would consider becoming involved in commercial disputes (according to 35%), especially in complex areas such as structured finance and derivatives.

Surprisingly 64% of respondents indicated that their institution hasn’t introduced changes to employees’ bonus structures.

Stephen Parish, Global Head of Banking, Norton Rose LLP commented: "The credit crunch has entered a dramatic new phase. What started as a liquidity problem arising from write-downs of mortgage-backed securities has been transformed, into a much more serious financial problem. Intensive efforts are being made to rescue and reform financial institutions; many are questioning the viability of their business models."

Many respondents (47%) were actively pursuing opportunities in new markets, especially in emerging economies (36% mentioned India, 47% the Middle East and 33% China) but also in Western Europe (31%) and in North America (23%).

75% of respondents believe the effects of the credit crisis will take between 1 and five years to dissipate, whereas 17% believe they will take over 5 years or will remain permanent.

James Bateson, Head of Financial Institutions, Norton Rose LLP commented: "Some economists believe that growth in emerging markets could offset the slowdown in the West, and investors from Asia and the Middle East are increasingly making strategic acquisitions of Western assets. Whatever course events take, the next few months will be challenging and unpredictable."