30.07.2012 - Turnaround-Berater Alvarez: "CFOs werden durch Krisen einflussreicher" (in Englisch)

The crisis has put chief financial officers in a difficult position. While investors and creditors strongly rely on finance chiefs’ opinions, making them crucial for companies’ financial survival, the precarious state of many businesses makes them the “bearer of bad news,” as Antonio Alvarez III, managing director of turnaround consultancy Alvarez & Marsal, puts it.

For some finance chiefs, now is the time to shine. “Some CFOs relish this moment,” he explains. “Others shy away from it; it’s high pressure.” In this situation, “the facts must speak for themselves,” Alvarez says, to ensure that chief financial officers win over other stakeholders in their cost-cutting efforts that will eventually cut away at the company’s product range.

Scarce bank lending coupled with strong corporate earnings and flush bond markets have created a bipolar world for CFOs: they either face a bitter liquidity crunch or huge cash piles building up on their balance sheets. Speaking on CFO Insight TV, Les Clifford, a partner at professional services firm Ernst & Young and a leader of their CFO programme, discusses their new report looking at how CFOs on both sides of the divide can cope with the challenge.

For chief financial officers at cash-strapped companies, raising liquidity is a daily challenge. This requires open communication with the lenders, Clifford says. “What you want to avoid is crisis management. Oftentimes many people try to believe that around the corner it’s going to be resolved, there’s going to be cash.” Instead of open discussions about long-term solutions with their lenders, they opt for short-termism.

However, this can be a dangerous approach, Clifford warns. “Most lenders are good at looking at the market and making their own views of these companies already,” he says. “So coming together to discuss each other’s perception can break down walls. ... Make [the lenders] a partner more than purely a lender.

Chief financial officers at cash-rich companies seem to face the easier task. However, they too must ensure that their message is being understood, Clifford says. “The question is: Are CFOs communicating their decision clearly enough to investors?” Many finance chiefs may not do all they can in this respect, leaving them vulnerable to investor backlash.

As Germany reflects upon the 10th anniversary of its structural reforms known as Agenda 2010, the debate about how to best get out of the crisis is going strong in many European countries. Johannes Müller, chief economist at Deutsche Asset & Wealth Management, says that the primary goal should be to reduce current account deficits. “Current account imbalances are at the core of the crisis,” he says. Müller concedes, however, that many countries in Europe are making good progress in turning their economies around.

The role of the chief financial officers has spread around the globe. But Armand Angeli, Europe President of the global CFO association IAFEI, points to differences in how the role is lived around the globe. Starting in Central and Eastern Europe and then looking to China, Angeli takes a broad look around.

The looming eurozone break-up has driven bond costs down to levels previously thought impossible. Anthony Bryson, European Head of Corporate Debt Capital Markets at BNP Paribas, explains why chief financial officers have been happy to “grab the money”.

The difficulties faced by many European banks to raise US dollars have crept into their relationships with corporate clients. A leading corporate banker explains how European chief financial officers have been making the best of the situation by tapping the US capital market instead. However, they need to wait for the right moment and should not forget about the additional compliance onus, says Heinz Hilger, head of corporate banking Germany, Austria and Switzerland at Bank of America Merrill Lynch.

European chief financial officers are beginning to feel the effects of US money market funds lowering their exposures to Europe. “We are beginning to see some strange changes in the documentation of credit facilities such as premium margins for US dollar draw downs or even complete limitations on US dollar availability,” says Hilger.