Profit warnings decline, but not out of the woods yet
The number of profit warnings from UK firms was down in the final quarter of 2009, but according to Ernst & Young we're not out of the woods yet.
The accountancy firm reported that only 50 companies issued profit warnings in the fourth quarter of 2009, the lowest level in six years as the economy picked up quicker than expected. But it went on to warn of more trouble ahead as “"2010 is when we start paying [for the recovery]". As such investors should brace for a “bumpy recovery” as governments will be forced by “fiscal necessity” to reign in stimulus, cut spending and raise taxes.
“Given the depth of the slump, recovery has certainly come quicker than we might have anticipated,” said Andrew Wollaston, restructuring partner at Ernst & Young. “This rapid economic recuperation, along with previously depressed earnings forecasts, is helping companies beat expectations and keep profit warnings low.”
Companies most prone to missing their earnings goals in 2009 were in fixed-line telecommunications, oil equipment, services & distribution and banks. “The economy will need a boost from the private sector and exports to avoid stagnation or, worse, a second dip,” warned E&Y.
The Bottom Line:If Mr Cable has his way...
"If Mr Cable had his way, all the big banks would be broken up and bonuses would be virtually eliminated - a sure-fire way in my view of guaranteeing an end to the UK’s ability to compete as an international financial centre. Let’s not forget that this is a man who is on record as saying that everyone who works in a bank has an ‘aristocratic lifestyle’ clearly demonstrating his lack of understanding of the sector." A tough line on bankers’ bonuses could make a brain drain of financial talent a distinct possibility, warns Paul Marsden. Read more