CFO Survey: Credit Noose is Tightening – Banking – CFO.com
CFOs are skeptical that banks will set aside an appropriate amount of their newly acquired capital — which they received in return for preferred shares in their company — to lend to commercial borrowers. More than seven out of ten survey respondents said banks would under-allocate resources in this area. Asked to which areas they expect banks will over-allocate resources, 58 percent of finance executives said banks would devote a disproportionate amount to acquiring other financial institutions. Respondents were allowed more than one answer, and 48 percent also thought banks would over-allocate funds to strengthening bank reserves. Forty percent also said that an outsized amount of the $700 billion would go to executive performance and retention payments.
To unfreeze credit markets in the short term, the Treasury's investment in banks has to have the appropriate strings attached, said one CFO. "Otherwise, I believe the money will mostly used to increase reserves."
Said another: "Figure out a way to force banks to use Federal funds to make loans, or take it back."
Clearly, CFOs think the bonds between companies and banks will continue to fray. The distributors of credit will require stricter debt covenants and other business terms in the future, said 84 percent of respondents. That response seems right in line with what loan officers themselves told the Federal Reserve in its October Senior Loan Officer Opinion Survey on Bank Lending Practices. In that survey, the Fed found that 85 percent of domestic banks reported tightening lending standards on commercial and industrial loans to large and middle-market firms over the past three months, a substantial increase from the 60 percent that reported doing so in a July Fed survey.
What's more, 32 percent of the finance executives surveyed by CFO said relations with lenders won't reach some sense of normalcy until the fourth quarter of 2009 or later (4 percent said never, 15 percent by 3Q 2009).
On a slightly positive note, less than one fifth of CFOs (18 percent) said that their changes in their relationships with commercial lenders during the financial crisis have placed their company's long-term viability at risk. But that number could worsen if the skies darken and experts' forecasts of a 4 percent decline in fourth quarter GDP come to pass.