Beginning of the year is a time when everybody reviews the past year, draws some conclusions and makes the prediction for the new year. The article below was taken from the blog of the Financial Services Club the analysts of which have provided their own prediction for 2009.

For most, 2009 is fairly obviously a year of rationalisation and implementation.

1) More major European and American banks disappear

We’ve seen plenty of this in 2008 already with JPMorgan gaining Bear Stearns and Washington Mutual, Wells Fargo soaking up Wachovia, and Lloyds TSB taking over HBOS. Expect more.

Already the major banks are closing parts of their businesses in order to try to save costs. Citi is selling off large parts of the group and withdrawing from many overseas markets, and Royal Bank of Scotland is doing the same as they get rid of their insurance divisions.

Expect a lot more of that.

Meanwhile, even with all of that frenetic activity of rationalisation of businesses, expect a few more major bank failures in the US and Europe.

Most likely contenders? Some banks share prices are so low today that the Governments of those banks in those nations will either nationalise them or force them to merge with a stronger player, as the UK Government did with Lloyds TSB and HBOS.

2) There will be some spectacular failures in the BRIC economies. The BRIC economies are interconnected with this debacle, and are also extremely vulnerable to it.

China has seen its growth thanks to European and American consumption of their goods. Those consumers have now disappeared, and China will see some spectacular industry failures this year, along with the banks that back those industry players.

Equally, Brazil and Russia’s growth was fuelled by the need for raw materials for those Chinese manufacturers. As those manufacturers fail, so will some of these suppliers.

Therefore, the BRIC economies won’t come riding to the rescue of the West, but expect to see those markets suffer some of the turbulence Europe and America suffered in 2008.

3) A Global Financial Regulatory Body is formed.

The G20 have started this process already and meet again in April in London.

By that time Barack Obama will be in attendance, and he will want to see urgent action to ensure that this situation never happens again, as do Gordon Brown, Angela Merkel, Nikolas Sarkozy, Hu Jintao and the other nation’s leaders.

Therefore, they will all be as one in agreeing that the Financial Stability Forum needs to go much further, and become the Financial Regulatory Forum, comprised of the leaders of the Fed, FSA, Bafin, AMF and other nation’s regulators.

This global regulatory body will review and refresh Basel II, as well as many other requirements for solvency and reporting.

It may even mean that some key underpinnings of regulatory change already under way such as Europe’s Capital Requirements Directive (CRD) and Markets in Financial Instruments Directive (MiFID) are changed, refreshed and reformed by new rulings focused upon Global Regulatory harmony.

All that starts up again, just as you thought you had finished your regulatory change programmes.

4) The US will drop IFRS Accounting Rules. Mark-to-market accounting will be reworked, and the IFRS will lose the impetus it had in the USA. All of this just after we had gotten to the stage of understanding what the hell these things meant.

The American movement away from GAAP to IFRS will falter as a result of mark-to-market rules, which are even more stringent in IFRS structures. This will see US firms being allowed to either re-interpret IFRS rulings or stick to GAAP.

Either way, it will be significant climb-down from the Bush administrations’ championing of the IFRS accounting approach, which was meant to become the standard for US firms. Barack Obama’s administration will not care a jot for that history though, and will want to make the accounting requirements for banks as simple and supportive as possible.

Therefore, the US Government will drop any promotion of IFRS accounting in the near-term, and will reinterpret GAAP to allow a ‘breathing space’.

5) Solvent banks gain major market share. Related to point (1) is that the biggest difference between 2009 and 2008 will be signs of the real winners starting to shine through. Some are already showing signs such as JPMorgan, Wells Fargo, Santander, HSBC and Standard Chartered.

Expect to see a few more.

These banks are winning on two fronts:

(a) they can acquire and cherry-pick the best of the weak competition, and buy them for a song as Wells Fargo did in grabbing Wachovia off Citi; and

(b) they can acquire and cherry-pick the best of the prime customer markets, as demonstrated by HSBC’s recent campaign to say: “we’ve got money to lend”.

By the end of this year therefore, expect to see a new World Order in the banking markets.

By way of example, Stifel Nicolaus announced their American bank stock tips for 2009 last Friday , which included BancorpSouth, City Holding, Danvers Bancorp, First Horizon, People’s United Financial and TCF Financial. In their report on the sector, the firm states:

“Though not unscathed by the credit cycle, these institutions maintain adequate capital levels, in our view, and, in many cases, will capitalize on weakened competitors … The list represents our best ideas in a sector that we believe will remain troubled from an earnings perspective for the next several quarters.”

Not much confidence in the industry there then.

However, other observers, such as Grant Thornton, say: “Banks, as a sector, may be thoroughly depressed, but we know by the Government’s own actions that they will not be allowed to fail. That makes it almost a one-way bet.”

With this one-way bet, focus upon the winners and the ones with capital.

These are my five market sector predictions for 2009:

1) More major European and American banks disappear

2) There will be some spectacular failures in the BRIC economies

3) A Global Financial Regulatory Body is formed

4) The US will drop IFRS

5) Solvent banks gain major market share.

My only other prediction would be that I expect the major market indices to rise by over 20% by end of year. After all, most of them were halved last year. It will only get better.

Source: Financial Services Club blog