With one exception, sub-prime lenders suffered from the chilling winds of recession in 2008, and the prospects for the year ahead look equally bleak.
The one exception is Provident Financial, which has defied its critics with a robust performance that helped its share price end the year with a 6.7 per cent gain. The company provides non-standard loans, and its success is based on achieving a close relationship between customers and agents that helps to keep bad debt levels low. What's more, agents only receive commission on repayments made, not on loans arranged, and this encourages them to ensure that potential borrowers are capable of keeping up repayments.
Cattles also provides loans to consumers who have difficulty accessing funds from high street banks. While there has been plenty of business for the company, as these mainstream lenders pull up the drawbridge, there has also been an increase in bad debt charges. And Cattles is struggling to secure approval for a banking licence that will enable it to establish its own deposit base and reduce its reliance on wholesale funding. Its fortunes for the coming year are tied largely to the success or failure in gaining that licence.
International Personal Finance runs much the same business model, but operates chiefly in eastern Europe and South America. Conditions are expected to deteriorate in the coming year, but the company has already tightened its lending criteria to adjust for rising unemployment and no new operations will be opened in 2009.
CONSUMER FINANCIALS
Meanwhile, most asset managers will be happy to see the back of 2008. Henderson Group suffered a catastrophic collapse in performance fees as a result of weakness in equities, and the new year holds little prospect of much respite. But it does mean that there is likely to be a degree of consolidation within the sector. And for the UK's largest quoted hedge fund, Man Group, there was little to cheer as assets under management shrank and weak equities cut performance fee income by nearly half.
Icap is the world's largest inter-dealer broker, and profits have risen steadily as greater levels of volatility have boosted trades from which Icap earns commission. However, the shares have been tarred with the same brush that has knocked virtually all financial stocks, and there are worries that deleveraging by banks and other financial institutions will hit volume. But Icap is already diversifying into other revenue streams, and further diversification seems likely this year.
For investment managers like Aberdeen Asset Management and Hargreaves Lansdown, the picture has not been too gloomy, with both companies managing to increase assets under management, despite falls in equity values. Customer loyalty plays a big part here, and a switch by consumers away from spending and towards saving should provide additional work in the year ahead. But, ultimately, the fortunes of asset managers will be largely dependent on a recovery in equity markets, so if the bear market finally bottoms out this year, expect to see a bounce back in the sector, too.
ASSET MANAGERS AND INVESTMENT BANKS
