Chief financial officers at some of the nation's largest banks and financial services firms are downright bullish on the U.S. economy's overall outlook but nagging concerns about health care reform and the uncertainty of those costs are tempering their optimism.
This general unease with the unknown fiscal implications of government-mandated health care reform policies combined with mostly dour economic conditions in the individual states in which these CFOs' companies operate will likely hamstring the U.S. economy's thus far gradual recovery and push prices for goods and services in the short-term.
According to a Grant Thornton survey of 318 CFOs and senior comptrollers in a variety of industries, 48% of executives now expect the economy to improve in the next six months but 55% also say they plan to increase prices and fees to offset expected increases in health care costs and other expenses related to satisfying new, industry-specific regulations.
While 65% of banking and financial services CFOs are optimistic about their own companies' sales and revenue prospects, 49% (vs. 37% for CFOs from all industries) said they will decrease their hiring in response to health care reform and 52% are convinced these new costs and regulations will crimp their growth through the remainder of 2011.
"Although we are seeing increased optimism in the banking and financial services sectors, firms are also bracing for the increased compliance costs that accompany both financial reform and health care reform legislation," Nichole Jordan, leader of Grant Thornton's national banking and securities industry group, said in the report. "Unfortunately, this means that increased costs from interchange fees to expanded health care will be passed along to the consumer or will affect how aggressively firms can hire."
Fifty-eight percent of banks and financial services firms' CFOs acknowledge they'll raise prices and fees in the next six months compared to 49% of execs at other industry companies.
These sentiments are similar to those expressed by the very people who are increasingly relying on financial advisors to help them save and plan for expected higher health care costs in their retirement.
In March, a survey of pre-retirees by the Schaumberg, Ill.-based Society of Actuaries found that overwhelmingly pre-retirees are most concerned about spiraling health care costs and inflation, the same two factors that are simultaneously weighing down most U.S. companies' long-term expectations and changing the way average Americans are saving, spending and living their lives.
"Given the uncertainties surrounding health care delivery, it is encouraging that virtually all respondents cite pursuing a healthy lifestyle as a primary risk management strategy," the report concluded. "Although it is not clear for how many this is a reality rather than an ideal."
For most CFOs surveyed, their firms' economic prospects are inextricably tied to performance of their local economies and the state laws and regulations under which they're bound.
The survey found that 61% of banking and financial services companies are enduring a negative impact on their businesses due to the financial condition of their states and, more damning, 66% claim that the actions -- or lack thereof -- of political leaders in their states have failed to create a "business-friendly" environment.
That's way 95% of executive surveyed said they support public-private partnerships designed to reorganize and improve the function of state and local governments and public services -- particularly pertaining to health care and regulatory oversight -- to help overcome some of the budget issues that are constraining economic growth at the state and national level.
"Although much of the industry has focused on the impact of national financial reform, banks also need to understand how the political and fiscal environments in their own states can affect their business," Jordan added.
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