Credit Crisis Undermines Confidence

of Corporate Treasurers in

Their Bankers

Worldwide survey of corporate treasurers finds confidence in banks collapsing, ever tightening credit and rising costs affecting business plans, and an urgent need to hoard cash to maintain current operations.

In a sweeping indictment from the money masters of the corporate sector, a survey of 290 corporate treasurers from major global companies indicates a collapse in confidence in banks and bankers since the credit crisis took hold. Treasurers also say that reduced availability of credit is forcing them to put expansion plans on hold.

These results emerged in the latest EuroFinance survey measuring the business confidence of corporate treasurers and related finance professionals throughout the world, garnering 290 responses from Europe, the US, Asia, and Latin America. The survey, completed in late December, reflects a dramatic decrease in optimism from previous EuroFinance surveys in October and August. Both polls had revealed that treasurers harboured a sanguine view their company’s prospects amid economic turbulence and perceived the downturn as a buying opportunity. The mood change reported here emerged as the crisis leapt from its origins in credit markets and financial institutions and accelerated into the real economy in November and December.

Reflecting this deepening impact, corporate treasurers report a declining trust in their bankers. Some 65% of respondents answered ‘yes’ when asked, “Has your trust in your bankers diminished since the onset of the global financial crisis?” Earlier survey response indicated only a slight mistrust in banks in general and most treasurers said they still had confidence in their own bankers. The enduring tightness in credit markets led to the erosion of confidence. A whopping 84% of respondents say that company performance has been negatively affected by the cost and availability of credit.

“The crisis finally showed its teeth at year-end,” says Tom Leander, editorial director of EuroFinance based in London. “Companies in many sectors still had robust cash positions through the summer. Now, as they increasingly turn to financial institutions for help, the banks are unwilling or unable to lend.”

The respondents named the ways that a shortage and high cost of credit has taken its toll. Three quarters of those answering report they are feeling the pinch of increased cost of local currency credit. Forty-four percent also cite decreased availability of US dollar credit. One third report increased cost of US dollar credit. Over a third says that tighter credit conditions have affected their markets, leading to lower or restricted consumption.

In reaction to the new environment, the treasurers report an increase in the use of cash for funding. Thirty-seven percent say that they are increasing their use of short-term debt to meet liquidity needs, while 24% have upped their issuance of long-term debt. Only 12% say they have resorted to asset sales.

Click here for Business Confidence Survey Results 2008