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Hunt for liquidity intensifies as credit dries up, reports Q2 Deloitte CFO Survey


  • Corporate liquidity under pressure as UK CFOs report sharp decline in availability of credit;
  • Two thirds disagree with the notion that the worst effects of the credit crunch have passed;
  • 54% of corporates likely to raise prices in response to rising inflation;
  • Debt is out of favour with many taking the view that the UK corporate sector over-leveraged;
  • Confidence is low on outlook for corporate earnings;
  • Yet, CFOs sentiment about M&A has improved

Corporate liquidity is coming under increasing pressure as credit becomes scarcer and markedly more expensive, according to the latest Deloitte CFO Survey. More than three quarters (77%) of CFOs report that credit is hard to obtain, up from 63% in March and 48% in September 2007. Nine out of 10 (89%) of CFOs rate credit as being costly, up sharply from 72% in March and 59% last September. Only 1% believe credit is still cheap.

Given these findings, it is unsurprising that the Deloitte survey suggests that things will get worse before they get better. Seven out of 10 (69%) UK CFOs think that credit conditions have deteriorated in the last three months and two thirds (66%) disagree with the view of US Treasury Secretary, Henry Paulson, that the ‘worst of the credit crunch is likely to be behind us’.

CFOs are also less confident than the City about the outlook for corporate earnings, with 56% believing that corporate earnings in 2008 will grow more slowly than the average 5.0% rate expected by City analysts. Only 6% expect faster growth.

Margaret Ewing, Deloitte partner and vice chairman, commented: “The squeeze on liquidity is increasingly transmitting itself to the corporate sector through a reduced supply and rising cost of credit. According to the CFOs  major UK corporates, credit conditions have deteriorated at the fastest pace since our quarterly survey began in September.

Deloitte’s findings for Q2 2008 show that debt is clearly out of favour, with CFOs, on balance, taking the view that the UK corporate sector is over-leveraged. This represents a marked shift from September, when the dominant view was that corporates were under-leveraged.

Margaret Ewing added: “Tighter credit conditions have triggered a major change in corporates’ attitude to debt. Enthusiasm for raising borrowing - or gearing – has fallen sharply since Q3 2007.  Stress in the banking system has seen CFOs report a fall in enthusiasm for bank borrowing. This marks a significant shift from our previous three quarterly surveys in which it was rated as being far more attractive than either corporate debt or equity.”

Nonetheless, CFOs see value in UK equities and sentiment about the outlook for M&A and private equity activity has actually improved. 49% of CFOs believe UK equities are undervalued, 22% rate them as overvalued.

Ian Stewart, Chief Economist and Director of Deloitte Research, commented: “The silver lining this quarter appears to be that CFOs continue to believe that UK equities are undervalued and that the FTSE 100 will rise over the next year. Bullishness about M&A activity, which was a striking feature of our findings in March, has risen even further, with more CFOs now expecting M&A activity to rise than to decline. This appears consistent with the view that value is opening up in the equity market.

 “It is, however, clear that corporates expect inflation to bite. 45% expect margins to be squeezed, and 54% of corporates saying they are likely to raise prices in response to rising inflation. CFOs naturally would prefer to raise prices rather than see margins be eroded. The big question will be whether demand is sufficiently resilient to accept such price rises.”

Read more about the survey and download the full report:  Deloitte CFO Survey, 2008 Q2.


Notes to editors:

About the  Deloitte CFO Survey  

This is the fourth 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 second quarter 2008 survey took place between 13 and 30 June 2008. 83 CFOs participated, including 51 FTSE350 companies. The combined market capitalisation of the companies surveyed is £260 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.

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