As many of you who work in the financial services sector are aware, this week signifies the two year anniversary of the collapse of Lehman Brothers. Images of that historical day are still vivid in memory; graduates turning up for their first day of work only to be told to turn around and go back home. Similarly, the more experienced and dedicated, long-serving employees, packing up their desks and walking out, clearly shell shocked that such a huge, Wall Street institution could fail in such a manner. Little did everyone know that this was to be the start of a long and arduous period in the UK, and the global economy.

Although the sub-prime problems were in full swing by the morning of 15 Sept 2008, Dick Fuld’s inability to consider the bank’s 25,000 employees and let his business collapse further fuelled the events that were to follow. Stock markets plunged to levels that had not been witnessed since another history changing event that took place in September seven years previous. A number of other banks had to be bailed out / nationalised to prevent further financial ruin in the market and of course, millions of people were made redundant.

Many have argued and petitioned for tighter regulation in the markets. What used to be a free and open market has now seen a number of initiatives / solutions been set to ensure another downturn of this nature does not occur again. Although not actually implemented as of yet, President Obama has endorsed the Volcker rule, which would essentially prevent banks from engaging in proprietary trading, and also ownership of hedge funds or private equity businesses. Furthermore, Angela Merkel decided at the turn of 2010 to ban naked short-selling as a result of the threat of a potential collapse of the Euro. The latter in particular highlights the problems faced across Europe – Ireland, Spain, Portugal and Greece have all had to face and fend off the threat of sovereign default.

The most recent change to global banking is the Basel III regulation. This requires banks to increase capital so they can be prepared for distress situations. Although the new regulations will not be fully implemented until January 2019, work has begun to ensure that tier 1 ratios hit 6-8% by that time. This transition is particularly important in that it doesn’t present another credit crunch crisis, with institutions not lending money in order to protect their capital adequacy ratio from falling.

Much has happened in the two years since the collapse of one of the most reputable banks on Wall Street. Aside from the above, the UK has witnessed a change in Government, which has highlighted the importance of austerity. The country returned to growth in the last quarter of 2009 and at the start of 2010 it was confirmed that the UK had come out of recession – one of the last major economies in the world to do so. This growth has continued within the financial services sector with headcount increasing exponentially (particularly in Q1), compared to 12 months ago. Where they previously cut too deep following the collapse, institutions are now looking to add resources to compensate for additional business flow this year.

In conclusion, whilst it has been mooted that it could take another 10-20 years before the associations of Lehman Brothers are completely wound up, it is hoped that if the threat of a double dip isn’t realised and hiring continues at its current rate, it will be a lot sooner before the UK economy can return to greater times.

Austerity, Banking, Basel 3, Credit crisis, economy, Financial Services, Lehman Brotheres, recession, Sub prime, Unemployment, Volcker Rule

Recently, there has been much scaremongering regarding the prospect of a W-shaped recession. In my opinion, people have got carried away, as it’s not all doom and gloom from where I’m standing.

The trouble stems from the Bank of England’s downward revision of their projected growth figures for 2011 from 3.5% down to 2.5% as well as Mervyn King’s ominous description of the recovery as “choppy”. Judging by the newspaper headlines last week, you could have been forgiven for thinking that our fragile confidence was about to be destroyed.

Do not be misled though as I would prefer to look at all this as the bottle being half full rather than half empty. The Bank of England is forecasting 0.7% growth for the last two quarters of 2010 and growth in excess of 2% next year. The Office for Budget Responsibility is also forecasting growth around the same level. Last year, we would have revelled at the economy growing at all, so 2.5% is still very encouraging.
Certainly, with regard to taxation, activity is increasing.

So far the focus has been on Indirect Tax and Transfer Pricing; understandably so, given HMRC’s desire to tighten the rules. Perhaps more encouragingly there has been some increase in corporate tax hiring. So far this has been limited but given the more general nature of this area, it’s an excellent barometer.

There is still little movement at the senior end of the market currently as senior tax professionals are choosing to stay put as present. However, with a bit of economic growth and some more confidence, they will become more inclined to move on and then we’ll see demand return.

My view is that the recovery is going to be slow and possibly “choppy” but it’s still a recovery and that’s definitely cause for positivity.

Bank of england, Corporate Tax hring, HMRC, Indirect tax, Mervyn King, recession, Tax, Transfer pricing