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Deloitte Q3 2009 CFO Survey: Caution rules in new era of financial conservatism

  • Financial optimism has reached the highest level since the Deloitte CFO Survey started in September 2007;
  • However, just 14% of CFOs expect a return to normal or trend rates of growth in their markets in 2010;
  • CFOs believe corporate sector is entering new era of lower gearing and greater financial conservatism;
  • Credit cost and availability have improved over the last year, but most CFOs continue to rate credit as costly and hard to obtain;
  • CFOs are expecting a lasting shift by corporates away from bank borrowing as a source of capital;
  • 81% of CFOs do not expect bank lending to corporates to rise until the middle of next year or later;
  • 92% of CFOs think M&A will rise over the next year, with 39% of CFOs contemplating making corporate acquisitions this year.

UK CFOs have become markedly more optimistic about the financial prospects for their own companies, but there is no expectation that we are on the verge of a strong recovery, according to the findings of the latest quarterly Deloitte CFO Survey.

Despite optimism among CFOs rising to the highest level since the CFO Survey began in September 2007, the mood is hardly euphoric. Instead, debt reduction and financial caution are in favour and it is clear that CFOs think these trends are here to stay. CFOs believe that the credit crunch marks a move to a new era of lower debt, less reliance on bank borrowing and a greater focus on liquidity.

73% of CFOs expect growth in their own markets to remain sluggish next year and 12% expect an outright contraction. Just 14% expect a return to normal or trend growth rates in their markets in 2010.

CFOs believe that the recession and credit crunch will bring lasting change to the way in which corporates structure their balance sheets. 70% of CFOs believe that the downturn will permanently change balance sheets, with companies running higher levels of cash or liquid reserves and relying more on equity and corporate bond finance and less on bank borrowing.

Margaret Ewing, Deloitte partner and vice chairman, commented: “While the economic outlook has improved, CFOs remain cautious. 79% think now is not a good time to take risk onto their balance sheet and debt remains out of favour. Many more CFOs plan to reduce debt over the next year than raise it.

“In future, companies are likely to be more financially conservative, running lower levels of corporate gearing and higher levels of liquid reserves. These changes are already making themselves felt, with bank borrowing going from being the most attractive to least attractive form of finance in the space of just two years. It is a measure of the shirt of preferences that 18% of CFOs say they have used capital markets to raise finance to repay bank borrowing this year and a further 19% say they are likely to do so.”

Ian Stewart, Deloitte chief economist, added: “While credit cost and availability have improved over the last year, most corporates continue to rate credit as costly and hard to obtain. It is clear that disruption in the financial system has fundamentally changed CFOs’ preferences for financing their businesses. Bank borrowing is still out of favour, while corporate bond and equity issuance are increasingly in favour.
CFOs are expecting a lasting shift away from bank borrowing as a source of capital.

“The caution about the outlook is captured in CFOs’ plans for their own companies for the rest of this year. Few companies are expanding or likely to increase hiring before the end of the year.

“However, given the weakness in M&A activity over the last year one striking finding of this quarter’s survey is that 39% of CFOs say that their companies are making, or likely to make, corporate acquisitions before the end of this year. Attractive valuations, a better economic backdrop and improved access to capital may all be at work here. Optimism about M&A and private equity activity has reached the highest level since our survey began two years ago.

“CFOs’ views on valuations have changed markedly in the last two years with UK equities having gone from being seen as the most undervalued to an overvalued asset class. Commercial real estate has gone from most overvalued to least overvalued status. Government bonds are seen as the most overvalued asset class.”


Notes to editors

About the Deloitte CFO Survey
This is the ninth 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 which gauges attitudes to valuations, risk and financing. The 2009 third quarter Survey took place between 18 and 30 September. 120 CFOs participated including CFOs of 36 FTSE 100 and 48 FTSE 250 companies. The rest were CFOs of other FTSE companies, large private companies and UK subsidiaries of major companies listed overseas. The combined market value of the 92 UK listed companies surveyed is £443 billion, or approximately 27% of the entire quoted UK equity market.

For copies of previous Deloitte CFO Surveys please visit

About Deloitte
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.

Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein, whose member firms are legally separate and independent entities. Please see\about for a detailed description of the legal structure of DTT and its member firms.

The information contained in this press release is correct at the time of going to press.

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