Global Securities Industry Outlook - Mid-year update: 2008Issues on the horizon |
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As 2008 began, many securities executives were probably reminded of the Chinese curse, “May you live in interesting times”. What began as a problem in the market for securitized U.S. subprime mortgages rapidly spread to other markets and ricocheted around the world as investment dried up for a wide range of instruments.
The repercussions have been widespread. Major financial institutions have announced billions in write-offs, and many fear the crisis is not yet over. To replenish the lost capital, firms looked abroad to sovereign wealth funds, which took major equity positions in several leading firms.
The losses led to the departure of CEOs and senior executives at several major institutions. A round of industry consolidation may be in store, with firms that enjoy larger balance sheets and have suffered fewer losses acquiring institutions that have been hit hardest. Concerns about a recession in the U.S. economy continue to be a top story that the industry is monitoring closely.
Securities firms have prospered over the last several years in large part by taking on more risk through proprietary trading for their own accounts, often of increasingly complex structured products. While there has recently been much attention on operational risk, the turbulent events of the past year have underscored the continuing need for upgraded management of market, credit, and especially, liquidity risk.
The industry has been responding to a welter of new legislative and regulatory requirements over the last several years, and the credit crisis has already led to more proposals for additional regulations. Adopting more efficient approaches to managing these multiple requirements will be important to remain competitive. Securities firms face a more unsettled industry and economic environment than they have in a number of years. Here are issues that we believe securities firms will need to address as the year continues to unfold:
- Enhancing risk management in structured products.
The recent problems in the credit markets, combined with securities firms increasingly investing their own capital in complex structured products, has moved market, credit, and liquidity risk management to the top of the agenda for senior management. - Developing a pipeline of management talent.
The reverberations from the credit and subprime crisis have led to senior management changes at major firms and brought home the critical importance of succession planning for the C-suite. - Taking a holistic approach to compliance.
Over the last several years, securities firms have faced a substantial burden responding to a variety of new and more complex regulatory requirements. - Cost management back in vogue.
With the market turmoil and economic slowdown, cost reduction has assumed an even higher priority. - Safeguarding data: The move to vendor risk management.
Events involving lost or stolen customer information have become all too common and have the potential to significantly damage a firm's reputation.
About the report
The 2008 Global Industry Outlooks offer an analysis and perspective on the key issues facing the financial services industry today. As the business world continues to change dramatically, financial services companies are faced with similar, but evolving issues. To position themselves for success, companies must study the trends impacting their industry and shape their strategies around them.
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Global Securities Industry Outlook 2008
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