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Asset managers to face strong competition from banks, warns Ernst & Young

The retail asset management industry could suffer in 2012 as banks compete to attract savings business, professional services firm Ernst & Young predicts.

The group’s latest financial services forecast notes that banks in the European Union still face significant funding pressures, despite the move by the European Central Bank to boost liquidity through its recent long-term refinancing operation.

One consequence of this funding squeeze is likely to be increased competition between banks for retail deposits and investments.

Ernst & Young head of financial services Europe, Middle East, India and Africa Andy Baldwin says: “In many countries funding pressures will force banks to compete fiercely with each other to attract retail deposits and we predict that savings products will start to be seen as an alternative to the investment products already on the market.”

He adds that this is expected to affect retail asset managers, which are currently facing net outflows and negative returns.

“There is a risk that this period of prolonged low returns may feed back to lower net inflows beyond 2012, with households channelling their limited savings into the higher interest bank deposits or debt repayment rather than fund-based investment,” Baldwin warns.

Yesterday’s financial services survey by PricewaterhouseCoopers and the Confederation of British Industry showed that optimism among asset managers fell during the fourth quarter of 2011.

Fund management houses were hit by an “unexpected” fall in the value of income from fees, commissions, trading and investments during the three-month period, leading to the first drop in profit since June 2009.

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