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Companies in all industries are paying for the transgressions of the banking sector.
Vincent Ryan, CFO Magazine
March 1, 2008
This is the introduction to a Special Report on the subprime crisis. Be sure to read the other stories included in this package:
Until recently, the health of banks hasn't been a pressing issue for finance executives. After all, it's been almost two decades since the last swell of commercial bank failures, 10 years since a financial crisis of any consequence, and 7 years since the credit cycle took a big dip. Along the way, the earnings of commercial banks quadrupled.
But thanks to the subprime crisis, banks are back on CFOs' radar. While few finance chiefs expect bank failures of any magnitude, the discovery of modern banking's soft underbelly has created unease. And the ripple effects are hitting corporations from many directions.
Now that the gaping holes in their risk management have been revealed, banks are trying to restore faith. In "Missing Pieces," we examine whether giants such as Merrill Lynch and Citigroup are really changing their risk structures or simply throwing new C-suite executives at the problem. One important question: How involved will bank CFOs be in monitoring exposures in financial markets?
Even as banks work out their risk quandaries, they are already demonstrating far less appetite for corporate loans. In "Pedaling As Fast As They Can," we explore how companies are sweating to find capital for new investment — and paying more for it.
The clots in the arteries of financial markets are also bad news for companies that grant trade credit to their customers. The National Association of Credit Management's Credit Manager's Index, an indicator of trade-credit trends and receivables' performance, has dropped for six straight months. In "No Uncertain Terms," we examine how to handle nonpayment risk in this environment.
Companies could be paying for the mistakes of banks for years. But in times of crisis, much can be learned. The credit crunch of 2007 will make CFOs more inquisitive of their financial institutions' business practices and balance sheets. That may do more to strengthen the foundations of banking than the previous 20 years of prosperity.