City bullish despite poor profit figures

City firms are preparing for an economic slowdown following gloomy economic figures released today.

According to Ernst & Young, company profit warnings were up by 46 per cent in the final quarter of 1998.

Tony Williams, managing partner at Clifford Chance, says: “There is some concern in the UK about the second half of 1999.”

But, the figures could mean extra business for City firms in the short term.

Williams says: “The economic slowdown may actually increase activity as people consolidate and seek to increase their market share.”

City firms tend to lag behind the rest of the economy at both ends of the cycle. Increased restructuring and insolvency work maintains business levels during a recession but, says Williams, “law firms remain in the dip for longer because corporates are building up their profits before going into new deals”.

David Cheyne, mergers and acquisitions specialist at Linklaters, is not convinced that increases in profit warnings will affect the public M&A market, because the stock exchange remains strong.

But he adds: “Logically, [profit warnings] might have an effect on pushing the market down, and if it did it would reduce activity.”