by Mark Grant, Managing Director & Head of Global Financial Institutions, and Clare Francis, Managing Director of Sales & Derivatives Structuring, Lloyds Banking Group
The recent financial crisis has changed the financial markets – and the players within them – dramatically and irreversibly. Unlike previous economic downturns, the effect of the crisis was synchronised across all of the world’s major economies. Even countries that did not sink into negative growth, such as China and India, saw significant government intervention to shore up the financial community. The start of 2010 has seen positive economic signs continue in most regions, but uncertainty remains, particularly relating to the speed and sustainability of growth, and the regulatory response to the crisis. This article considers the economic outlook, which although brighter than a year ago remains fragile, and explores what financial institutions require from their UK banking partner in this environment.
From crisis to cautious optimism
Although many of us can remember previous economic downturns, such as 1975-76, 1981-2 and 2002, the most recent crisis is unique in both the depth of recession (Figure 1) and the synchronicity across markets. The UK experienced negative growth of 6.1%, around the mid-point compared with other major economies, with Ireland at one end of the spectrum -12.3% and France -3.5% at the other (Figure 2).
We saw unprecedented LIBOR-OIS spreads in October 2008, and although these narrowed relatively quickly, it was almost a year before liquidity in inter-bank markets returned to normal levels. This has been accompanied by a return to flat or positive growth in most countries, although this has been slower in some markets than others, including the UK.