Jocelyn Cunningham, a principal with Deloitte Consulting and its U.S. leader for the securities and capital markets, is still bullish on the financial services sector. The market certainly has to overcome some challenges, she says, but thinks maybe some of the problems have been sensationalized a bit by the press. That, of course, crumbles consumer confidence. And some more good news—historically, election years have been kind to the market. "I think whoever comes into office will have their fair share of challenges to deal with, but I don't think they'll have to worry about pulling the country out of a recession," Cunningham says. Consulting: Most of the financial news we've been hearing has been negative. Is it as bad as it sounds?
Cunningham: I think some of it has been sensationalized by the main-stream press, specifically what's being written about the sub-prime market—I think there's a certain flavor of the moment aspect to it. It's worthy reporting, but I do think there's a little bit of a lack of appreciation for the complexity of the situation.
Consulting: So, what is the financial situation right now?
Cunningham: There's a lot of press about the sub-prime market, but we should be looking more at the credit crunch—and that will show it's really ugly face when we talk about the jumbo market. While there are a lot of investors in the sub-prime space, there are more investors—and dollars—in the jumbo market. That will be a very interesting thing to watch for the second and third quarters of this year. But overall, despite the losses and despite the impact of the sub-prime market, the financial market is working as it should be working. There's been a loss of market cap for certain institutions, but then there have been other institutions that have made a lot of money. I think it boils down to the simple fact that certain institutions—either willingly or unwillingly—took business risks that either worked or didn't. Some would say they didn't completely understand the risk, and others would say that they understood the risks and took the wrong bet.
Consulting: So, are we headed for a recession?
Cunningham: If there's general panic about the economy, then it could definitely happen. But again, it strikes me as still a very robust economy despite some of these issues. If we get decent response from the regulators and relief on rates that could be enough to hold off a recession. But certainly it's a dip from an economic perspective.
Consulting: What does that dip mean to the professional services sector, and as a result, the consulting industry?
Cunningham: Historically, when there's been a blip in the market there's been a delayed, but relatively consistent, blip in professional services. But this time around, none of us has seen that so far. It's either still to come, or it's just not coming. I think it's an interesting change from what we've seen in the past. We're still seeing a robust amount of activity in professional services and therefore, I don't think we'll see a negative impact in the consulting space.
Consulting: The negative sectors of the economy are well documented. Where are the opportunities?
Cunningham: The private wealth management space is doing phenomenally. I think the overlap there is the convergence of asset management, banking and insurance with the baby boomers. There's surplus cash coming into that space, and that's the first time we've seen that in a generation or two.
Consulting: What was your reaction to Bank of America buying Countrywide for $4 billion?
Cunningham: I think it's a very shrewd move by Bank of America—on one hand it props up Countrywide and on the other hand, B of A gets a great asset for cents on the dollar. And I think it helps the entire marketplace. It wouldn't be good to see Countrywide go under, and the hope is that this move will restore some confidence in the market.
Consulting: What are you forecasting over next 12 months?
Cunningham: I think we're going to see continued convergence. That could come through merger and acquisitions, or that could come through foreign investment. With the weak dollar, what we're seeing is foreign companies jumping in to buy U.S. companies. With some of these companies losing market cap, some of what we would call the U.S. flagships from a financial services perspective become very affordable for our foreign competitors.
Consulting: Will the U.S. dollar continue it's downward spiral?
Cunningham: I don't think that spiral will continue, but I also don't think it's going to rebound any time soon. I would be surprised—and this is purely a guess—if I saw a rebound in the next six to 12 months. So, I do think we're looking at a soft dollar for the next year or so.
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