The Role of CFOs in Light of Structural Changes in the European Financial Services Industry

Abstract

Consider those individuals who started their professional careers in the European financial services industry around 1990. Ten years later, in 2000, their company’s share prices had increased around four-fold on average, having climbed steadily higher throughout the entire decade. 1 Many of these professionals may have joined the ranks of senior management at that point. Then, in 2001 and 2002, banks saw their commission and trading-related income decline as trading volumes stagnated and asset bases eroded due to the drop in the equity markets. European insurers realized significant losses and impairments of financial assets in their investment portfolios, and their capital bases deteriorated. Cost levels in the financial industry, however, remained high. Globally, market values fell almost 25% for banks between 2001 and the end of 2002, and 40% for insurers. After having spent the majority of their careers in a decade marked by rising equity markets and tremendous wealth expansion, these professionals, aged 45 and under, are now faced for the first time with adjusting the objectives and plans of their particular area of responsibility to a less optimistic market environment. This will require an underlying shift in the mindset of individuals in the financial services sector and, by inference, of those firms that seek to compete successfully in the current decade.