Skip to content


  • Add this article to your LinkedIn page
  • Add this article to your Twitter feed
  • Add this article to your Facebook page
  • Email this article
  • View or print a PDF of this page
  • Share further
  • Add this article to your Pinterest board
  • Add this article to your Google page
  • Share this article on Reddit
  • Share this article on StumbleUpon
  • Bookmark this page

Banks must act now to survive the new zombie reality of half dead banks, governments, consumers and companies

10 November 2009

PA Consulting Group launches new book The zombie economy: leadership in times of uncertainty  

We have avoided an economic apocalypse and a form of recovery is imminent but financial services must be prepared to live in a world dominated by powerful forces of half-dead, half-alive zombies.  These zombies will ensure business does not return to any kind of acceptable normality for at least several years, according to PA Consulting Group’s book ‘The Zombie Economy: Leadership in times of uncertainty’.  

Superficially government intervention appears to have saved some key banks from disaster with many now declaring huge profits.  The reality is different: many banks are still in the twilight world, only half alive and struggling to rebuild their balance sheets.  In this new reality it will be at least 2011 before we return to pre-crisis performance levels and growth rates will remain subdued for longer still.

What is a zombie economy?

The zombie economy is made up of not quite dead banks, governments, consumers and companies staggering along, struggling to function in the new world:

  • Zombie banks whose balance sheets are too weak to support sufficient lending.  Banks may be declaring huge profits but their recovery is partly an illusion.  Potential losses of $3.4 trillion in the financial system could yet still unfold.

  • Zombie governments whose finances are too stretched to sustain expansionary policies. Highly expensive government intervention means debt to GDP rates are set to rise to levels not seen outside war-time.

  • Zombie consumers whose wealth is too depleted to allow them to consume. Because of the state of the economy in general, and bank lending in particular, US consumers are spending 5% less of their disposable income – they will be unable to act as the world’s ‘consumer of last resort’.

  • Zombie companies the combined impact of zombie banks, governments and consumers is exerting a powerful negative force on companies. They are saddled with debt that they cannot comfortably service, impeding growth and investment. UK Corporate insolvencies are now at record rates. 

Serious problems ahead for banks in the zombie world 

Banks are facing four key threats in the zombie economy:  

Solvency. There are potentially huge losses, of the order of $3.4 trillion, in the financial system that could yet unfold.  The banks still have significant exposure to toxic assets including commercial property, consumer and business loans. If they were forced to recognise these huge losses the question of their solvency would re-emerge with all the consequences for confidence and survival that would bring. 

Regulation. New regulation will bring significant change. We could see a world in which utility operations are separated from casino operations, and all may have far higher capital requirements than in the past. Bonuses look set to be constrained and systemically important banks will pay a risk-weighted premium for their too-big-to-fail status. This inevitably will bring far reaching change to the dynamics of the banking sector.  

Risk Management. In the pre-zombie world few banks responded to the risks to which they were exposed and understood how far and fast things could deteriorate. Traditional risk models - or at least those taking the feeds from them simply failed to cope with an interconnected world characterised by complex financial instruments.

Recovering business and consumer trust.  Banks have to live with damaged reputations and apply tighter approaches to lending. As a result, they are finding it hard to regain the trust of customers and deliver a positive customer experience at the same time as dealing with the consequences of previous poor lending decisions. Well known brands like Tesco are entering the market, opening banking units in its stores. These new entrants have strong brands and this brand value makes them an attractive option to consumers who are now much more willing to move their deposits. 

David Troman, head of financial services at PA Consulting, says: 

“The simultaneous existence of the zombies is something that has not occurred before in the working lifetime of anyone in financial services today. Many banks are battening-down the hatches and waiting for recovery. The reality of this limp along strategy is that it will be several years before the banks regain health and are able to provide the levels of credit which companies need to escape the zombie economy.  

“The combination of all these factors means that banks, despite appearances, are only limping along in a half-alive state. Their ability to lend and to fuel economic growth will remain low for several years.  As a result, the financial crisis will haunt the wider economy for some time yet.  We shall all learn to live with zombie banks.”

You can request a copy of The zombie economy: leadership in times of uncertainty here



Notes to editors

About Living with Zombies: Leadership in times of uncertainty

Living with Zombies: Leadership in times of uncertainty is written by Mark Thomas, head of strategy and marketing at PA Consulting Group, with contributions from PA sector and function specialists.  The book is based on a detailed analysis of the 2009 half-year results for over 600 US and UK companies, using data drawn from the Bloomberg database.

Who are the zombies?

We use the term ‘zombie’ because these individuals and institutions do not cease to exist, but they do become unable to perform the functions that we expect of them in supporting growth of the economy: zombie banks cannot lend as we need; zombie governments whose finances are stretched, zombie consumers cannot consume and zombie companies who are saddled with debt that they cannot comfortably service.

The book identifies winners and losers and the likely impact on industry restructuring, sector by sector.  This analysis is based on two critical factors – the liquidity factor and intrinsic value. The liquidity factor is a compound index made up of a weighted average of: Acid-test ratio; Dividend cover; Gearing; Interest cover; with the greatest weight on interest cover. Intrinsic value is estimated using a simplified (and slightly conservative) form of the discounted cash-flow model assuming: long-run ROE equal to the average of the last 5 years’ ROE for each company; long-run growth rate in line with economic growth at 3 per cent nominal; cost of equity at 10 per cent.

About PA Consulting Group

PA Consulting Group is a leading management and IT consulting and technology firm. Independent and employee-owned, we operate globally in more than 30 countries and transform the performance of major organisations in both the private and public sectors.

From initial idea generation and strategy development through to detailed implementation, we deliver significant and tangible results. We have outstanding technology development capability; a unique breadth of skills from strategy to performance improvement, from HR to IT; and strong expertise in communications, media and entertainment, defence, energy, financial services, government and public services, healthcare, international development, manufacturing, transportation and logistics, and water.

Contact the Financial Service team


By using this website, you accept the use of cookies. For more information on how to manage cookies, please read our privacy policy.