For the first time in many years, the seemingly unassailable financial sector in New York and London looks vulnerable. Transaction volumes are down, lending volumes are plunging and one of the biggest mortgage lenders in the U.S plans to cut over half of its workforce. In the UK, job losses have climbed by 20,000 since February according to The Bank of England.

Two trends are emerging. First, the dominance of New York and London still looks intact, but there are huge growth opportunities elsewhere, most significantly in Asia and the Gulf. Second, financial institutions have traditionally communicated well to each other, but not so effectively to the broader society in which they operate. They now have to play catch up.

From West to East, four Hill & Knowlton commentators in the U.S, U.K, Middle East and Asia, examine the current economic climate in their region and implications for financial communicators.

New York
Continued fallout from a bursting housing bubble, the credit crunch and rising oil and commodity prices have left the U.S economy on the brink of recession. U.S financial markets, criticized for enabling the excesses, are now suffering the brunt of the downturn. M&A activity in the U.S has dropped as financing has dried up, particularly for the private equity buyers who drove the last M&A boom. IPO activity has dwindled as companies wait on the sidelines for more favourable market conditions.

“In order to protect their brand, financial communicators will need go beyond outreach to financial journalists and investors and essentially facilitate the role of liaison between multiple internal organizational functions that for years have run in silos.”

Ryan Barr, Senior Vice President and Director, Financial Relations

London
A shadow has been cast across London’s status as the world’s leading financial centre. The impact of the global credit crunch has led to a widespread loss of faith in the financial sector, its regulators and in the UK Government. One bank has been nationalised and others are turning to shareholders or overseas investors for an injection of life-giving capital.

“What is emerging is a new type of communication based in part on the ‘re-humanisation’ of the financial world. Financial institutions will need to communicate honestly and openly with their shareholders and reassure staff, counterparts, and customers that their institution won’t face a bank-run, won’t waste new share capital and won’t close their doors.”

Ben Curson, Director and Head of Professional and Financial Services

Dubai
In the Middle East, Cash rich SWFs of the Gulf have swiftly capitalized on “cheap” assets available in failing financial institutions in the West. Moreover, Dubai, Abu Dhabi, Qatar and to a certain extent Riyadh, have also gained some respite from the ‘talent crunch’ as job losses in the West have created a migration of human capital to the Gulf. At the same time, investment in NYSE, LSE and the acquisition of OMX in Sweden have added infrastructure and expertise to the region’s nascent financial markets.

“Ironically, the very factor that has weakened Western markets is now the primary challenge for the Gulf’s next phase of growth – trust. Rapid expansion, the desire to become both regional and global finance centres and the comparative lack of experience all necessitate transparency, good governance and robust regulation. The key to success is sustained communications to relevant stakeholders.”

Dave Robinson, CEO, Middle East

Hong Kong
Asia has seen encouragement from the Chinese government’s ‘going out’ policy, overseas investments and acquisitions by Chinese companies in the first quarter of 2008 saw a record amount of US$19.3b, a figure that exceeds the total for the whole of 2007. However, high inflation is threatening to slow what seemed to be unstoppable growth. The region’s stock markets have tumbled and the corporate earnings outlook for some sectors is starting to look gloomy.

“For companies seeking to raise funds or maintain their solid investor base, the backdrop of falling stock markets means it is essential to make a compelling investment case. Only those who have communicated a solid business model, a sound strategy and a competitive advantage can expect to gain investors’ confidence – and cash.”

Denise Maguire, Head of Financial Communication, Asia Pacific