|CFOs Say Financial Crisis Impacts Short-Term Funding, Long-Term Strategy, and Risk Management
|Senior finance executives weigh in on current financial turmoil in new CFO Research survey
|CFO Research Services|
|October 01, 2008|
For Immediate Release
CFO Research Services
Boston, MA, October 1, 2008 – CFOs and their teams are bracing for tough times in response to recent financial market turmoil, according to a new survey conducted by CFO Research Services. As the crisis unfolded on Wall Street and in Washington, CFOs and other senior finance executives expressed greatest concern for their ability to raise capital, execute long-term strategy, and manage risk in the months to come. This is a crisis with global impact, say senior finance executives, that was caused more by the risk management practices and complex instruments at financial institutions than by deregulation of the financial services industry or fair-value accounting requirements.
CFO Research fielded the survey, underwritten by global professional services firm Towers Perrin, in the immediate aftermath of the collapse of Lehman Brothers, the sale of Merrill Lynch, and the $85-billion government bailout of AIG, as news of a proposed $700 billion bailout of the financial services industry reached the markets. One hundred twenty-five senior finance executives working in a wide range of industries across the country responded.
TOP-LINE FINDINGS FROM THE STUDY INCLUDE THE FOLLOWING:
Recent financial turmoil has harmed financial prospects, but the level of anticipated harm is moderate.
- A solid majority of survey respondents (62%) say that recent events have harmed their companies’ financial prospects.
- But few respondents (only 4%) say they fear the most acute level of harm will befall their companies as a result of recent events.
CFOs and other senior finance executives expect economic disruption to be global in scope; survey results suggest long-term plans are at risk.
Finance executives overwhelmingly agree (86%) that the disruption to the economy caused by the current financial turmoil will be global in scope—not confined to the United States.
Survey results also suggest that finance executives fear the fallout from the current financial turmoil will be long-lived:
- While 61% percent of respondents say they’re more concerned about their companies’ ability to access short-term financing in light of recent events, even more respondents (65%) say they’re more concerned about their companies’ access to long-term debt financing.
- The vast majority of respondents (73%) say that recent events have made them more concerned about their companies’ ability to carry out strategic plans.
Respondents say banks’ risk management failures are a major contributor to the crisis.
Senior finance executives responding to the survey seem to assign blame for the current crisis to the financial services industry:
- 62% percent of respondents say that risk management practices at banks and other financial institutions were a major contributor to the crisis, followed closely by increased complexity of financial instruments (59%).
- In contrast, survey respondents are much less likely to assign blame to external industry factors—only 28% say deregulation of the banking industry was a major contributor to the crisis, while a mere 24% cite fair-value accounting requirements as a major contributor.
Senior finance executives working in the financial services sector say that complexity of financial instruments was a major contributor to the crisis.
The 32 senior finance executives from financial services companies who responded to the survey assign blame for the current crisis somewhat differently than their peers working outside the banking sector:
- 53% of finance executives in the financial services industry say that risk management practices at banks were a major contributor to the crisis, compared with 66% of respondents from outside the financial services sector.
- But 78% of finance executives working in financial services say that increased complexity of financial instruments was a major contributor to the crisis, compared with only 53% of finance executives working in other industries.
Risk management emerges as one of the first-order issues to emerge from the crisis—on par with the most immediate funding problems that companies are currently experiencing.
- Perhaps motivated by the evident consequences of risk management failures in the banking industry, 55% of all respondents say their companies are likely to make changes in their companies’ risk management practices either at the board level, at the employee level, or both as a result of the current crisis.
- Respondents are more likely to say their companies will change their risk management practices than to say they’ll change their relationships with banks (50%) or their cash management practices (49%).
Other findings from the survey include the following:
- A majority of finance executives responding to the survey (59%) say that the current wave of consolidation in the financial services sector will harm U.S. companies.
- 59% of respondents believe the market for complex credit-protection instruments such as collateralized debt obligations (CDOs) is at least “somewhat likely to revive.”
These and other findings from this survey will be discussed in greater detail in a forthcoming report from CFO Research Services in October 2008. The published report will be available at www.cfo-research.com.
About the survey
As the financial markets descended into turmoil after a series of events shook Wall Street in September 2008, CFO Research Services surveyed CFOs and other senior finance executives to shed new light on the financial crisis and its real-world impact on companies’ financial and risk strategies.
CFO Research launched the survey on Friday, September 19, in the immediate aftermath of the collapse of Lehman Brothers, the sale of Merrill Lynch, and the $85-billion bailout of AIG, and just days after the government bailout of Fannie Mae and Freddie Mac. In the following days, we received 125 complete survey responses from CFOs and other senior finance executives across the United States. Respondents work for companies in a wide range of industries. More than half of respondents come from companies with more than $500 million in annual revenue.
About CFO Research Services
CFO Research Services is the sponsored research group within The CFO Group, which includes CFO magazine—the leading business publication for C-level and senior finance executives—CFO.com, and CFO Conferences. The CFO Group is an Economist Group business. More information is available at www.cfo-research.com.
About Towers Perrin
Towers Perrin is a global professional services firm that helps organizations improve performance through effective people, risk and financial management. The firm provides innovative solutions in the areas of human capital strategy, program design and management, and in the areas of risk and capital management, insurance and reinsurance intermediary services, and actuarial consulting. Towers Perrin has offices and alliance partners in the United States, Canada, Europe, Asia, Latin America, South Africa, Australia and New Zealand. More information is available at www.towersperrin.com.