Deloitte: Caution rules in new era of financial conservatism
Financial optimism has reached the highest level since the Deloitte CFO Survey started in September 2007.

Fuente:  Fecha: 26.10.2009

Deloitte: Caution rules in new era of financial conservatism

UK CFOs have become markedly more optimistic about the financial prospects for their own companies, but there is no expectation that we are on the verge of a strong recovery, according to the findings of the latest quarterly Deloitte CFO Survey.

Despite optimism among CFOs rising to the highest level since the CFO Survey began in September 2007, the mood is hardly euphoric. Instead, debt reduction and financial caution are in favour and it is clear that CFOs think these trends are here to stay. CFOs believe that the credit crunch marks a move to a new era of lower debt, less reliance on bank borrowing and a greater focus on liquidity.

73% of CFOs expect growth in their own markets to remain sluggish next year and 12% expect an outright contraction. Just 14% expect a return to normal or trend growth rates in their markets in 2010.

CFOs believe that the recession and credit crunch will bring lasting change to the way in which corporates structure their balance sheets. 70% of CFOs believe that the downturn will permanently change balance sheets, with companies running higher levels of cash or liquid reserves and relying more on equity and corporate bond finance and less on bank borrowing.

Margaret Ewing, Deloitte partner and vice chairman, commented: “While the economic outlook has improved, CFOs remain cautious. 79% think now is not a good time to take risk onto their balance sheet and debt remains out of favour. Many more CFOs plan to reduce debt over the next year than raise it.

“In future, companies are likely to be more financially conservative, running lower levels of corporate gearing and higher levels of liquid reserves. These changes are already making themselves felt, with bank borrowing going from being the most attractive to least attractive form of finance in the space of just two years. It is a measure of the shirt of preferences that 18% of CFOs say they have used capital markets to raise finance to repay bank borrowing this year and a further 19% say they are likely to do so.”

Ian Stewart, Deloitte chief economist, added: “While credit cost and availability have improved over the last year, most corporates continue to rate credit as costly and hard to obtain. It is clear that disruption in the financial system has fundamentally changed CFOs’ preferences for financing their businesses. Bank borrowing is still out of favour, while corporate bond and equity issuance are increasingly in favour. CFOs are expecting a lasting shift away from bank borrowing as a source of capital.

“The caution about the outlook is captured in CFOs’ plans for their own companies for the rest of this year. Few companies are expanding or likely to increase hiring before the end of the year.

“However, given the weakness in M&A activity over the last year one striking finding of this quarter’s survey is that 39% of CFOs say that their companies are making, or likely to make, corporate acquisitions before the end of this year. Attractive valuations, a better economic backdrop and improved access to capital may all be at work here. Optimism about M&A and private equity activity has reached the highest level since our survey began two years ago.

“CFOs’ views on valuations have changed markedly in the last two years with UK equities having gone from being seen as the most undervalued to an overvalued asset class. Commercial real estate has gone from most overvalued to least overvalued status. Government bonds are seen as the most overvalued asset class.”