Optimistic forecasts raise CFS Financial Center Index

(All numbers in the brackets indicate difference between expectations and realization)

Sales and earnings of financial institutions increased in the first quarter of 2012 compared to the expectations in the previous quarter (+8.0 and +7.2 points respectively). In contrast, among the service providers in the financial center both indicators were below the expectations (-4.8 and -6.9 points). Nevertheless, the service providers are more optimistic than the financial institutions in the second quarter. The financial institutions expect declines in their sales and earnings, whereas service providers forecast strong increases in these fields.

The investment and employment levels among financial institutions also exceeded the forecasts from the previous quarter (+0.2 and +3.6 points respectively). Employment in absolute numbers even increased although financial institutions forecasted a decline. Among the service providers, the investment was slightly below the expectations (-1.2 point) and the employment rose less sharply than it was forecasted (-3.1 point). As far as the outlook for the second quarter about investment and employment is concerned, service providers show more optimism than the financial institutions. They expect a slight increase in investment and a further strong increase in employment. Contrary, financial institutions foresee stagnating investments and a slight decrease in the number of employees. The absolute level of expectations concerning investments in the second quarter is similar for both groups of companies (107.2 and 111.0 points), whereas the employment forecast shows completely different sentiment (100.2 and 115.2 points).

In order to improve transparency and accountability, the panel members of the CFS Financial Center Index from this quarter on are going to be divided into two groups only: "financial institutions" and "service providers". Previously, four groups: "financial institutions and brokerage firms", "financial sector service providers", "supervisory and academic institutions" and "other service providers profiting from the financial center" were distinguished.
 

More than a half of respondents (55%) opposes the introduction of a European financial transaction tax as proposed by the European Commission under the so-called "extended cooperation". The financial institutions (64%) are much more skeptical than the service providers (45%). Within the banking industry - among private, public and cooperative banks - the rejection rate does not vary significantly and is consistently above 60 percent. The majority of the panelists does not believe that a financial transaction tax will lead to a participation of the banks in the costs of the financial crisis (54%), reduce the price volatility in the markets (71%) or curb speculative transactions (66%). However, 48% of the respondents see the possibility that a financial transaction tax will reduce the high frequency trading (with "no" ratio of 38%). More than two thirds of the panel members (68%) suggests a shift of business activities to other countries as a result of taxation. "The arguments of politicians supporting the introduction of the tax have been broadly rejected by the survey participants" said Jan Pieter Krahnen, director of the Center for Financial Studies. "Our survey shows that the financial industry does not expect that steering effects will be achieved. It does not even assess the tax as a penalty, but shifts potential costs on shoulders of customers."

The respondents are mostly convinced that an introduction of a leverage ratio (total Tier 1 capital ratio: 3% of total assets) and a higher minimum equity capital ratio (total capital + capital conservation buffer 10.5%) will also have adverse effects on business volumes and income in the financial industry. About two-thirds of the respondents fear that there will be a reduction in credit availability in response to the introduction of such a debt limit. About 70 percent expect such an effect in response to a higher minimum equity capital ratio. In contrast, a majority of respondents believe that the introduction of a mandatory cash reserves and separation of commercial and investment banking a two-tier banking system will have neither positive nor negative impact on the company's figures.