A message from our Global Head of Financial Services
The impact of COVID-19 on the financial services industry is profound. While other industries are severely impacted it is the resiliency and continuity of the financial services markets that will support Governments and businesses during and post crisis.
The crisis will accelerate fundamental shifts in how we work and interact in both a private and business context. As the financial ecosystem is in uncharted territory and the situation is evolving every day, financial service organisations need to be agile, transparent and act decisively in response to the challenges that COVID-19 has posed. New regulatory, tax, accounting and reporting requirements as a result of COVID-19 will require immediate action by a newly collaborative, distributed and remote workforce.
In response to the above challenges, measures have been implemented by banks and the wider financial services industry including fiscal stimulus steps, rate decreases, liquidity measures, and relaxation of capital rules.
COVID-19 puts a spotlight on insurers who can expect to be inundated with general inquiries and claims across multiple different lines.
Because of the long-term assets and liabilities that life insurers hold, market volatility is challenging for the sector. Major exchanges around the world have experienced some of their worst falls in decades; movements in equities, interest rates and credit spreads create tremendous asset liability management risks for life insurers as yield curves flatten.
Covid-19’s impact on the fintech space is global. As evidenced by almost all asset classes, investors are currently liquidating assets to fortify their cash positions. Many fintech companies are likely to follow suit, as raising funding in the current market will likely prove exceedingly difficult and expensive.
Digital-only becomes the new industry norm in financial services, accelerating the current trend. This also means that cyber-readiness and security will be more important than ever to prevent cyber criminals from taking advantage of environments of uncertainty and panic to launch their attacks.
The performance of the asset and wealth management industry is generally considered an indicator of the overall health of the economic environment, given how closely revenues are tied to the capital markets.
Publicly traded asset managers have seen their share prices fall 20% to 30% or more since February. Significant liquidity in passive products is largely untested. Large areas of fixed income markets, such as corporate credit, are showing growing signs of stress. There are, however, opportunities evolving from the crisis. Businesses that have borrowed heavily may want to consider refinancing opportunities. Structured buy backs of extant debt will make sense for some businesses while the opportunity to buy up cheap loan assets from lenders seeking to cash-out and focus their resources elsewhere will be an attractive proposition for some investors. There will be some distressed debt sales where borrowers’ prospects have suddenly become uncertain. Risk averse investors or those required by regulation to only hold low risk investments will seek to exit their positions. Where such opportunities arise, the possibility of a fast recovery will make these potentially very attractive investments. The general dip in asset prices will mean that there will be significant opportunities for mergers and acquisitions in the short and medium term. This may be through take-private transactions or disposals of non-core businesses as a means of raising cash.
Each of our specialist teams in banking, insurance, asset management, fintech, tax and advisory services are assisting our clients with their most urgent issues and are advising on short- and medium-term strategies and scenario planning. It will not be business as usual ever again. We are supporting our clients in reviewing and potentially reshaping their organisations to emerge stronger from this crisis and be ready to thrive in a world of new opportunities.
Partner, Head of Global Financial Services