58% of Chief Financial Officers of some of the UK’s major companies now believe the recent turmoil in credit markets will adversely hit their businesses in 2008, according to the latest Deloitte CFO quarterly survey, which benchmarks corporate financial attitudes. This is a marked deterioration from September when 42% of CFOs expected a negative impact.

But the CFO Survey also suggests that most major corporates are well placed to cope in a world of scarcer and more expensive bank credit, with internal and external financial resources available that they could draw upon in a prolonged credit squeeze.  

52% of CFOs said they were optimistic about their ability to find alternatives to bank borrowing, such as capital markets debt and public and private equity. In addition, 95% of CFOs say they have additional financial resources, such as undrawn facilities, cash and saleable assets, which could be used to fund the business over the next twelve months, should the need arise. Moreover, two thirds of CFOs say they do not need to undertake significant refinancing of debt or bank credit for over a year and some have no near-term refinancing needs in the next two years. 

Commenting on the findings, Deloitte Vice Chairman Margaret Ewing said, “Three months ago CFOs were fairly sanguine about the impact of the credit crunch and consequential implications for the economy on their own business.  However, as problems in credit markets have persisted, CFOs have seen more direct evidence of the effects on the cost and availability of capital. As a result, the users of corporate capital are beginning to take a more negative view of the outlook”.

Mrs Ewing noted, “The Survey demonstrates that corporates vary in their exposure to changes in market interest rates and availability of bank debt. Most major UK companies have alternative funding resources already available to them that they could draw on in the event of a prolonged squeeze on debt finance.  Similarly, despite the current credit crisis, where there is a need to raise a new financing or undertake a refinancing, many UK CFOs continue to favour bank credit as a source of external finance for their business, although now only 44% favour this as a source of financing, compared to 73% three months ago”.

Regardless of the funding situation, there is now evidence that UK corporates are increasingly feeling the effects of the credit crunch. Three quarters of CFOs said that events in credit markets have raised the price of credit and two thirds said it has reduced credit availability.  Ian Stewart, Associate Director of Deloitte Research, commented: “CFOs are saying that the effects of the credit crunch have fed through the banking system and are affecting the corporate sector.  Events in credit markets seem to be beginning to reshape strategic and funding plans of corporates, and in particular, their attitudes to debt”.  In December 37% of CFOs said that they plan to raise gearing in 2008, down sharply from the 56% recorded in September.  Further, 20% of CFOs believe the credit crisis has adversely affected their companies’ capital spend plans for 2008. 

Higher debt costs suggest that a period of rising corporate indebtedness and declining equity issuance – the process of de-equitisation - may be slowly drawing to an end. Mr Stewart notes, “In the last three months CFOs have cut back on planned debt issuance and on earlier plans to raise gearing. Moreover, 60% of CFOs think the UK is moving towards a period of corporate deleveraging and rising equity issuance”.

Notes

About this Survey
This is the second quarterly Deloitte survey of Chief Financial Officers and Group Finance Directors of major UK companies. The Deloitte CFO Survey is the only survey of major corporate users of capital that gauges attitudes to valuations, risk and financing. The fourth quarter survey took place between 30th November and 11th December 2007. 43 CFOs participated representing 38 FTSE350 companies, three private companies and two with overseas parents. The combined market capitalisation of the firms surveyed is over £170 billion.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms.  Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other's acts or omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.