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Financial Services

A world of challenges sets an uncertain stage
By Carola Jain

The 2012 outlook for the financial services sector seems rather bleak. A number of factors -- ranging from economical and political shifts to general questions about the role of financial institutions -- have changed the landscape considerably and continue to create significant uncertainty in the industry.

Increased regulation across all markets is making it harder for banks to generate profits and extend sufficient credit into the system. Banks are confronted with the need to raise huge amounts of funds in 2012 to comply with new rules, which will be a difficult task in the current environment.

The changed economical and geopolitical environment has also been extremely challenging for the financial services sector. “Business as usual” no longer exists. The ongoing Eurozone crisis is adding tremendous stress to the financial system. Markets that were once considered stable are no longer safe bets. China and Russia are facing political transitions and the Middle East is experiencing enormous political and social changes. Considering this picture of global instability, it is understandable that investors are rather risk-averse -- or will be heading into 2012.

The events of the past few years have certainly added to the seemingly universal public relations problem that banks are experiencing. By and large, the public still blames banks for taking the world to the brink of economic meltdown -- and the financial services sector, as a whole, has not been able to rebound. People want to see that banks have a positive impact on the economy, not a destabilizing or destructive one. In order to overcome this loss of trust, banks will have to actively prove that they are “adding value to society.” If not, initiatives like Occupy Wall Street may regain momentum.

So, which brands in the financial services sector are well positioned for 2012? From our perspective, it is those banks that are well capitalized and able to comply with the new requirements, yet still have sufficient scale to take advantage of opportunities as they emerge. Not an easy combination. JPMorgan Chase is certainly well positioned, as is Goldman Sachs. With so many European banks struggling, it remains to be seen which banks will emerge as leaders in the year ahead.