Corporate Banker Hilger: US funding woes for banks direct CFOs towards bonds

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.

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CFO expert Clifford: Communication is key for both cash-rich and cash-poor CFOs

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.