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Oakleaf Partnership Financial Services – Sector Update

We thought it beneficial to review the financial services market by sector, sharing the insights that have been gathered via our own research and from the interesting conversations we have had over the last few months with our network and customers. We have compiled a brief overview of each sector that we cover; Banking, Insurance, Trading, Brokerage Securities & Ratings and Asset/Investment Management.

It is important to acknowledge both the negative and the positive impacts of the last 6 months in order to recognise what opportunities and challenges have developed for businesses and in particular for HR. Human Resources teams have shown that they are leading from the front to support businesses through the pandemic and how to navigate around the short and long term effects from a people perspective. The future landscape for HR within financial services will almost certainly see a huge change in how they engage with their business and the board.

Banking

  • Banks such as RBS, Barclays and HSBC have seen their share price fall to levels not seen since the 2008 financial crisis. However the global banks came into the coronavirus pandemic much stronger than they went into the global financial crisis and therefore should have a more robust recovery.
  • Banks have had to quickly convert a traditional in-person working model to one that is largely remote. They are therefore now updating their location strategies and real-estate footprints with some stating only 20% of workforce will return this year. This then means HR will need to review working from home setups and their implications such as culture, engagement and reward.
  • Forced digitalisation – opportunity to rethink ways of operating however potential increase in cybersecurity risks. What role will HR have to take to monitor the use of tech from home?
  • Banks are likely to see reduced profits in 2020; however, if we use the financial crisis as a reference, banks typically gave increases except during the most extreme periods of the crisis. Some banks may use bonuses rather than fixed cost salary increases moving forward. This is a challenge for HR, comp rounds have begun and businesses will need to review reward with the impact and changes from the pandemic in mind.

Asset Management

  • The FCA’s Megan Butler has commented that the investments sector needs more ‘creative solutions’ to avoid misconduct. She said that most organisations are realising that lots of controls, oversight and cultural practices are based on pre-existing relationships and the longer working from home goes on, the more at risk they are of breaking down. For HR this will mean looking at how to implement more resilient solutions to these issues, and how to establish trust remotely with new employees.
  • Brexit brings us new headlines daily at present and is causing concerns about the preservation of London as a world leading financial centre. In various news stories we have seen large figures of assets being moved out of the UK in preparation for Brexit, and jobs being repositioned in cities such as Dublin. What impact this will have on the sector remains uncertain, as plans from the government remain uncertain. On a more positive note, most will retain their HQ offices in London and have currently have some employees returning to offices on rotations.
  • Having just celebrated Inclusion Week, there has been a spotlight on diversity in the sector but the actions shouldn’t stop there at the sharing of content of social media. Diversity is often assigned as an HR ‘issue’ but as Chris Cummings CEO of The Investment Association recently wrote in the FT – “Increasing the representation and progression of black people in our industry cannot simply be the duty of HR or talent spotters. This is a challenge for us all."

Trading, Securities, Brokerage & Ratings

Trading:

Globally Covid19 has adversely impacted the trading market, however an interesting element was the activity in the market prior to the pandemic. From Jan – April (2020) the export & import activity was down 9.9% - 11.9% which implies that the sector was struggling beforehand, however it is expected & predicted to see a large increase in activity in the coming months.

Here is an overview of how two of our top trading clients are fairing:

  • There is a very strong balance sheet, sufficient cash resources and access to incremental liquidity under the various adverse scenarios assessed.
  • Reported a 17% increase in reported revenue for the first half of the year
  • Market has been busy throughout the pandemic. The business closed all trading floors and are looking to slowly bring people back into the office; however HR will be in the last wave of people back in the office. There is also the challenge and risk of threat with working from home and the use of trade technology.

Securities:

  • The market should see a large rebound due to large investment in Renewables with Swelling Infrastructure Funds (banks providing liquidity, low funding costs & a more liquid bond market- this could be an opportunity from a Talent perspective to invest in new headcount.

Ratings & Brokerage:

  • At present, fourteen Ratings firms are looking to trade in the UK beyond 31st January 2021.
  • The brokerage market increased by 7% in the month of August compared to July 2020 and one of our top brokerage clients reported a gross revenue was up 45%, which was a new record for them in a trading year (2019 – 2020)

Insurance

  • Insurance The insurance industry remains resilient, continuing to generate growth around the world and maintaining overall profitability despite turbulence in the global economy. In a highly competitive environment, executives acknowledge that organic growth will not be enough! Firms can no longer rely on organic growth or internal innovation. The winners will be those that can forge alliances with successful start-ups; ally with InsurTech; and consolidate with their close competitors. This will also be an opportunity for hiring new Talent.
  • Reinsurance - Due to the economic slowdown across countries owing to the COVID-19 outbreak, the global reinsurance providers market is only expected to grow from $438 billion in 2019 to $438.9 billion in 2020 – only (repetition – lose) a 0.3% increase. However the market is then expected to recover and grow at an annual growth rate of 9% from 2021 and reach $554.2 billion in 2023. Risk management and reinsurance firms such as WTW, Aon, Munich Re, Swiss Re seem to be profitable and doing well, however companies such as AIG who specialise in Travel, mortgage & life insurance seem to of taken more of a hit with Covid related claims.

Lauren Hewlett- Senior Manager- Head of Financial Services

laurenhewlett@oakleafpartnership.com

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