While European economies are still battling to recover from the financial crisis of 2007 and 2008, Europe's financial services industry seems to have turned a corner and is now remarkably sanguine about its prospects over the next few years. Approximately 90% of the 200-plus European finance executives—one-half of whom are in C-level roles—surveyed by The Economist Intelligence Unit recently are reasonably confident that their companies will do well in the next three years. Within western Europe, a slightly higher percentage of respondents from Germany (96%), the Netherlands (96%) and France (95%) say they are confident in comparison to their peers from the UK (85%).

The developing eastern European markets hold considerable appeal for insurers, finds the EIU survey. “Emerging economies with a growing population and increasing demand for insurance certainly offer the most potential for us”, says Volker Deville, executive vice president at Allianz, Europe's biggest insurer.

 “We have established a presence in 15 central and eastern European markets, and with patience and time, we aim to benefit from their long-term growth,” explains Andreas Brandstetter, chief executive of UNIQA. The company’s target for 2020 is for the central and eastern European region to generate 50% of total premiums (from 20% now), and 30 to 40% of profits. 

Efficiency is the key

Finance executives’ optimism is not based on grand expansion plans or an ambitious new strategy. Rather, competitive advantage for their firm in Europe is by far the most important reason that makes Europe a promising market for many survey respondents.

Indeed, companies appear more focused on making their current operations more profitable than on expanding market share in Europe. “Banks, in particular, are hunkering down,” says Gareth Lambert, a partner in the financial services practice of Ernst & Young, an accounting and advisory firm. “With limited near-term growth across many countries, and nervousness continuing over Europe’s financial recovery, the onus for many is on efficiency, cutting costs and simplifying complex processes as far as possible.”

People represent the single largest expenditure for financial services companies. And so it is an obvious place to look for cost savings. “As customers increasingly shun branches in favour of online information gathering and transactions, expensive high street space and such a large branch workforce become unnecessary,” says Roberto Nicastro, the Group General Manager at Unicredit, the Italian banking and financial services company with responsibility, among other things, for Austria, Central and Eastern Europe, Poland, Fineco (the online bank) and Strategic Marketing. “We have been decreasing our workforce by 3000 to 4000 every year, and expect this trend to continue.”

The new multichannel retail banks and insurance companies, and the IT revolution which spawned them, have also allowed companies to consolidate their processes, and substantially reduce duplication across borders. “We can increasingly use the same phone payment system, the same contact centre technologies, the same mobile applications for all the 21 countries we operate in,” adds Mr Nicastro.“Retail banks are no longer just local operations.”

With the economic environment in Europe still fragile, financial firms realise that they will have to be at their competitive best to hit their business targets. Over one-third (35%) of respondents say that substantial investment in products and services is required in order to make their company as resilient as possible in the next three years.

“You can focus on optimising internal efficiency, establishing internal best practice, as much as you want,” explains Volker Deville, executive vice president of Allianz, “but if you don’t develop products that customers need, then all that efficiency is irrelevant because you won’t be making any money.”

Looking for value

Attractive valuation of assets is also opening up investment opportunities for those on the lookout. “In the case of private equity,” says Lionel Zinsou, CEO of PAI Partners, the France-based private equity firm, “it is always better to start to deploy a fund in recession provided of course that we finish the cycle with a period of growth.” The EIU survey of European financial services executives found that 64% of private equity respondents were feeling confident about their firm’s performance in Europe over the next three years.

Alternative investment vehicles are also feeling upbeat. Most hedge fund managers surveyed by the EIU were remarkably confident about their firm's prospects, more so than their peers in other branches of European financial services. Danny Kessler, CEO of Met Group, a London-based boutique, thinks he knows why. “After the onset of the crisis, major financial institutions have been akin to super tankers unable to change course, held back by the nature of their culture and decision-making structure, not to mention legacy issues such as the Libor interest rate rigging scandal,” he says. “We see ourselves, on the other hand, as beneficiaries of the crisis, presented with opportunities we wouldn’t have got anywhere near a few years ago. We can be nimble—we are the speed boat darting around among the super tankers.”

Mr Zinsou concurs: “European companies possess an enormous well of expertise and brands with huge potential, both of which can be utilised globally.” PAI Partners take what they call “mittlestand” companies that currently have a limited geographical reach, introduce the right strategy and management personnel, and turn them into medium-sized or large global companies. “We can professionalise them, support them. It’s timely work, it’s huge work, and it’s very much in the public interest.”

The EIU survey demonstrates that while Europe's unstable economic and political conditions are clearly disconcerting, they are also increasingly being seen by many finance executives as an opportunity to invest in the future. “Most of the people now running these companies have already been through a number of cycles in their own careers,” says Scott Moeller of Cass Business School. “Most of them cut their teeth in the 1980s and experienced the crash of 1987, the Asian crisis and the dotcom crash. They will be confident that they have learned enough to get through current problems.”