The Banking Fallout May Begin… Soon
Just because concerns about a massive systemic financial collapse are starting to recede doesn’t mean other industries won’t feel the impact of it all. And sooner, perhaps, than most leaders realize.
With the US government guaranteeing deposits and various banks stepping in to rescue troubled peers, analysts are hoping the crisis has been contained. Banking stocks led a market rally earlier this week, for instance. But experts say leaders in industries like commercial real estate, travel and hospitality, consumer retail, automotive, and manufacturing could potentially feel a financial pinch from the crisis in the form of another interest-rate hike, curtailed borrowing and lending, and still-high inflation.
One potential area of concern is supply chains, which are still struggling to meet demand, says Melissa Hadhazy, a senior client partner in the Industrial practice at Korn Ferry who specializes in supply chains. Companies have been bolstering inventory of certain products and materials that were difficult to obtain following the pandemic, says Hadhazy, but now they will have to decrease inventory levels to preserve cash. “The need to slow down or cancel orders will put their supplier base in a very difficult situation,” she says, noting that many vendors hired workers, increased shifts, and took on debt to meet demand—some of it from the very banks that are now in jeopardy.
Decreased access to capital could also pose challenges for the travel and hospitality industry, where a majority of the players are small- and mid-cap companies, says Radhika Papandreou, sector leader for the Travel, Hospitality, and Leisure practice at Korn Ferry. The industry, which relies heavily on investment and partnerships, is already facing a steep decline in deals so far this year. Mergers, acquisitions, and private-equity investments fell 71% in February from a year ago, according to research firm Global Data. Globally, there were 44 deals in all announced in February 2023, versus 111 a year ago. Papandreou says the banking crisis is likely to further depress deals. “Companies will be reluctant to lever up to buy and sell assets in the space,” she says.
For home builders, car manufacturers, and retailers, among others, there’s also the omnipresent concern that consumers will start losing confidence in the system and pull back on spending. High confidence and strong spending have been two of the three pillars propelling the economy (along with robust hiring), but experts worry that memories of the 2008 financial collapse could lead both to decline, which could be devastating to the overall health of the economy.
Korn Ferry senior client partner David Ellis says smart companies should be looking at their risk profiles and “identifying potential sources of contagion” they may be exposed to as a result of the banking crisis. That includes everything from risk profile to responses to emerging risks to whether the executives in charge of risk management have a seat at the table with the executive-management team and board. “Everything is connected in a global economy,” he says. “Risk starts in one place but spreads to others.”
For more information contact Korn Ferry’s Risk Management practice.