Senior business leaders in the banking and financial services industry foresee their industry's recovery lagging that of the national economy, but still see 2010 as a turnaround year as they expect improvements in revenue and profitability, according to a recent survey conducted by KPMG LLP, the audit, tax, and advisory firm.

In the KPMG survey, slightly more than a third of the banking and financial services executives thought their industry would fully recover from the current economic crisis ahead of the overall U.S. economy. Yet, while expecting a comparatively slower recovery, 78 percent of banking and financial services executives expect the business conditions for their industry to improve in 2010 with 72 percent of them expecting much stronger revenue and 68 percent expecting improved profitability.

"The downturn impacted the banking and financial services industry to a greater degree than most industries and therefore it will take longer to fully recover," said Tony Anzevino, partner-in-charge of KPMG LLP's Banking and Finance practice. "And although the results of this survey suggest senior leaders think the industry has hit the bottom of the downturn, clearly they still indicate that finding new sources of revenue and improving their management of risk will be major challenges in the year ahead."

STABILIZING REAL ESTATE MARKET CRITICAL TO RECOVERY

When asked to identify the top three triggers they think will spur an economic recovery, 46 percent of banking and financial services respondents cited a stabilized real estate market, 45 percent said an increase in jobs, and 43 percent said improved consumer confidence. The banking executives most frequently cited the stabilization of the real estate market as a key trigger for recovery.

The three triggers cited least frequently by the banking and financial services executives included effective regulations (6 percent), government stimulus spending (3 percent), and government bailouts / Troubled Asset Relief Program (2 percent).

BIGGEST CHALLENGES TO RECOVERY

When asked to identify the biggest challenges they currently faced in dealing with the economic downturn, banking and financial services leaders most frequently cited managing risk (70 percent), finding new sources of revenue growth (57 percent), complying with regulations (44 percent), raising capital (44 percent), and restoring investor confidence (44 percent).

RISK MANAGEMENT, IT, AND OUTSOURCING ALL PART OF RECOVERY EFFORTS

More than half of the banking and financial services executives said they already had created or modified their risk management plans, while one-third more said they were in the process of doing so in reaction to the economic downturn. Interestingly enough, almost half (45 percent) cited implementing IT solutions to reduce operational costs as a means to adjust to the downturn, while about one-third said they were increasing the amount of outsourcing they were doing.

"These results reflect our own experience, with banks taking the lead in the industry and looking hard at the way they run their businesses," said Anzevino. "We've had an increasing number of discussions around better risk management and better cost control, and we also see they're getting back to basics with less reliance on complex structured products. The silver lining in this economic cloud may be that these actions could ultimately result in a stronger, more secure banking system."

HEADCOUNT REDUCTIONS ALMOST COMPLETE; NO GROWTH PREDICTED

Two-thirds of respondents in banking and financial services noted they had already completed their headcount reductions and only 15 percent were contemplating further actions.

Banking and financial services leaders were not sanguine about the employment situation in their industry next year; 70 percent said it would be worse or about the same. Conversely, 30 percent think it will be better in 2010.