Credit to corporates to remain blocked until 2010

Deloitte found that 39% of CFOs polled saw no recovery of credit conditions and pricing until the first half of 2010. The research was conducted between 12-30 September ­ the period that kicked off extraordinary economic instability with the failure of Lehman Brothers and nationalisation of Bradford & Bingley.
A further 34% wagered a recovery would come in the last half of 2009, roughly one year after the US Treasury’s banking bailout plans first came to light.

Ninety-seven per cent of respondents said credit was costly, up 38% on the same period last year, while 89% ­ a 41% increase year-on-year ­ said credit was hard to obtain.

CFOs and FDs of non-financial companies moved fast to protect their companies from economic fallout in the period the study was undertaken. Taking the hint from the suffering of the banking sector, Deloitte found many had already started to de-leverage and restructure their balance sheets, as news of catastrophic failures and nationalisations both sides of the Atlantic gathered pace.

“For the first time since the survey started, more CFOs plan to reduce gearing over the next year than to raise it,” Deloitte vice-chairman Margaret Ewing said. “A majority of CFOs rate bank borrowing as being unattractive ­ a big change from last year when almost three-quarters of CFOs saw it as attractive.”

The survey revealed a general deterioration in the optimism that had been so resilient among FDs and CFOs in the last year, even as the chain of emergency nationalisations on both sides of the Atlantic unfolded, compounded in the UK by the near-collapse of the banking industry. Ewing said companies were now focused on containing the fallout. “CFOs are preparing for a more prolonged period of distress in credit markets than they had earlier expected, with cost-cutting and cash preservation coming to the fore,” the vice chairman said. “There is also a growing readiness to contemplate more radical options such as offshoring and dividend cuts ­ a reflection of the growing intensity of the slowdown.”

Predictably, the study showed short-termism ruling future strategy amid current uncertainty. More than half of CFOs asked by Deloitte said they would cut headcount and capital expenditure, and 70% planned to further batten down the hatches by putting on a hiring freeze. The number of CFOs considering moving capacity offshore to save cash doubled in the quarter to 29% and the number that had decided to cut dividends rose five-fold to 16%.