- Economic Confidence Hits Three-Year Low Due to Recession Fears and
Inflation Concerns -
- U.S. Companies Expect Lower Year-end Bonuses -
- Companies Plan 2.3 Percent Price Jump Over the Next 12 Months -
FLORHAM PARK, N.J. and NEW YORK, Oct. 16 /PRNewswire/ -- American
companies view mortgage brokers and lenders as the primary culprit for the
subprime mortgage mess, according to a recent survey of CFOs conducted by
Financial Executives International (FEI) and Baruch College's Zicklin
School of Business.
When asked in the 2007 third quarter "CFO Outlook Survey" who, in their
view, was to blame for the subprime mortgage defaults, 86 percent
identified brokers and lenders. The second most named offender in this
scenario was the credit rating agencies which were cited by 40 percent of
CFO respondents. Other responses in descending order were credit rating
agencies, investment dealers, investors, and the Federal Reserve.
Many believe a related effect of the global credit crisis to be the
decision by the Federal Reserve's Open Market Committee (FOMC) last month
to lower the federal funds rate 50 basis points to 4.75%. Nearly 80 percent
of those CFOs surveyed agreed with the Fed's decision, and the majority (62
percent) does not anticipate the cut to impact their company's current
borrowing position. While respondents do expect the federal funds rate to
continue to be lowered over the next twelve months, the mean expectation by
CFOs for the Federal Funds rate in September 2008 is only slightly lower at
4.50%.
"We are experiencing a challenging market environment characterized by
uncertainty and turbulence around interest rates and credit markets, the
value of the dollar, and employment and therefore, increasing anxiety about
recession and/or inflation," said John Elliott, Dean of the Zicklin School
of Business at Baruch College. "With economic confidence at a three-year
low, CFOs face real and perceived challenges in coming quarters."
Economic Optimism Drops
The CFO Optimism Index for the U.S. economy, which was 62.85 for this
quarter, dropped 4.4 points from last quarter, reaching a three-year low.
This quarter, 56 percent of the CFOs are more concerned about recession
than last quarter, while over one-third (34 percent) report being more
concerned than they were last quarter about inflation over the next twelve
months.
CFOs' outlook toward their own companies also decreased this quarter,
as the Optimism Index of CFOs' own companies sank to 71.68, the lowest
level in 39 months.
"The ripple effect from the sub-prime mortgage meltdown is undoubtedly
being felt by both companies and investors in the global marketplace," said
Michael P. Cangemi, FEI President and CEO. "We have left behind a period of
easy credit, apparently too easy, which led to excesses. The challenge for
the Fed is to manage a balance."
Additional Data:
CFOs Give Cox a "B" Rating
Overall, American CFOs view Christopher Cox's performance as
satisfactory. When asked to rate his performance to date as chairman of the
Securities & Exchange Commission, over 50 percent (52.2%) issue him a B
grade for his overall performance while another 41 percent give him a C
rating. When asked about specific issues, such as Sarbanes-Oxley or markets
competitiveness, a strong majority of CFO respondents neither strongly
approve nor strongly disapprove of Cox's performance, instead falling
somewhere in between on the approval/disapproval spectrum.
Lower Bonuses Expected
On average, responding CFOs anticipate year-end bonuses to decrease by
over three percent (mean) compared with those issued in 2006. By industry,
CFOs in retail wholesale businesses anticipated the largest drop by
thirteen percent.
Big Four Firms Seen as Too Expensive
Almost 80 percent of the companies surveyed reported purchasing
services from non-Big Four audit firms. Of that 80 percent, the majority
purchase tax (74 percent) and auditing (68 percent) services. Some of the
specific reasons listed for using these alternative audit firms are that
the Big Four firms are no longer interested in this type of audit work or
that their prices are too expensive.
Companies Expect Greater Price Increase
CFOs plan to increase product prices at their own companies 2.30% in
the next 12 months compared to 1.85% last quarter and 2.07% in the first
quarter of 2007. Companies expected a price increase of 2.53% in the third
quarter of 2006.
About the Survey
Full survey results are available at http://www.cfosurveys.com or from Jamie
Renninger at jamie.renninger@fd.com. For more information, visit
http://www.fei.org/global.
This quarter, the CFO Outlook Survey, conducted by Financial Executives
International and Baruch College's Zicklin School of Business, interviewed
220 corporate CFOs electronically the week of September 24. CFOs from both
public and private companies and from a broad range of industries, revenues
and geographic areas, including some off-shore companies, are represented.
Survey respondents are members of Financial Executives International.
FEI has been conducting surveys gauging the country's economic outlook
from the perspective of CFOs for the past nine years.
About FEI
Financial Executives International (FEI) is the leading advocate for
the views of corporate financial management. Its 15,000 members hold
policy- making positions as chief financial officers, treasurers, and
controllers. FEI enhances member professional development through peer
networking, career planning services, conferences, publications, and
special reports and research. Members participate in the activities of 86
chapters, 75 of which are in the United States and 11 in Canada. For more
information about FEI, visit http://www.financialexecutives.org.
About Baruch
Baruch College is a senior college of the City University of New York.
The Zicklin School of Business at Baruch College is the largest and most
diverse AACSB accredited collegiate school of business in the nation.
Baruch has a long tradition of producing accounting and finance graduates
who become leaders as CPAs and CFOs. http://www.baruch.cuny.edu
MEDIA CONTACT: Jamie Renninger / Kristen Crofoot of FD +1-212-850-5658
/ 5692
SOURCE Financial Executives International and Baruch College's
Zicklin
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Related links:
http://www.fei.org
http://www.financialexecutives.org
http://www.baruch.cuny.edu http://www.cfosurveys.com
http://www.fei.org/global
http://www.prnewswire.com/comp/310650.html /
CONTACT:
Jamie Renninger, +1-212-850-5658, or Kristen
Crofoot, +1-212-850-5692, both of FD
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