Capital Markets

York: A Long, Ugly, Deep Recession

Jerry York's advice to CFOs: "Watch your receivables like a hawk."
Tim Reason and S.L. MintzMarch 11, 2008

Speaking at the CFO Rising conference in Orlando, former IBM and Chrysler Corp. finance chief Jerry York predicted a lengthy and deep recession for the American economy.

Addressing the topic of what boards are demanding from CFOs, York said if he had only five minutes to give his speech, he would tell finance chiefs that: “CEOs and boards are just going to expect you to get these companies through the mess,” emphasizing that, “I think this is going to be a very ugly recession, I think it is going to be lengthy, I think it is going to be deep.”

York, who is currently CEO of Harwinton Capital, a private equity firm he founded in 2000, is also a corporate director at Tyco International and Apple Inc. During the conference, which has run annually for the last 15 years, York told “It’s going to be a very bad recession, perhaps the worst I’ve seen in the 46 years I’ve been working.”

He described a “perfect storm” of economic calamity, including rising energy prices, rising commodity prices, credit markets in turmoil, credit losses in which “no one knows where the bottom is,” and a housing market in crisis. “We have too many sectors going south all at once, he told the website. What’s more, York can’t find a silver lining: “I frankly don’t see many positive signs right now, we are looking at a really nasty economic situation.”

“Watch your receivables like a hawk.” -Jerry York on the coming recession, during CFO Rising, March 2008

In his speech, York pointed to problems in the derivatives market, noting that one of the biggest difficulties facing companies today is that the market has grown too complicated. “These instruments are so complex, and no one knows whether their counterparty is good for them or not.” Placing further blame on unknown counterparties, York responded to an audience question about the length and severity of the recession, by saying he didn’t think the downturn was “forecastable, in part because we don’t know what all these counterparties are.”

Fielding another question, this time about the possibility of a major U.S. bank failure, York said that although he had not studied the issue carefully, he didn’t think the suggestion was, “off the chart at all, especially for smaller banks.” He said that most of his wealth is invested in five major financial institutions, so the possibility of a bank failure has been “on my mind.” He continued: “When [the banks] got hit, I was on the phone with their general counsels.”

An audience member also quizzed York about leverage and its effect on companies during an economic downturn. “The private equity guys are already in the tank, because they can’t do what they do to get their returns,” asserted the CEO. “My advice to all of you in this room is to be conservative until we get to the bottom of this thing,” referring to the credit crisis, adding that, “I think it is going to be extremely difficult to borrow without collateral.”

Indeed, York warned credit collection departments to stay on top of credit terms and receivables, “because in a contracting economy, receivables become a concern.” He cautioned: “Watch your receivables like a hawk.”