Survey: CFOs blame credit crisis on lenders, brokers

Economic confidence hits three-year low due to recession fears, inflation concerns

FLORHAM PARK, N.J., Oct. 16, 2007 -- 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 percent. 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 12 months, the mean expectation by CFOs for the Federal Funds rate in September 2008 is only slightly lower at 4.50 percent.

"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 12 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 FEI President and CEO Michael P. Cangemi. "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 chair of the Securities and Exchange Commission, 52.2 percent 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 the Sarbanes-Oxley Act 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 more than 3 percent (mean) compared with those issued in 2006. By industry, CFOs in retail wholesale businesses anticipated the largest drop by 13 percent.

Companies expect greater price increase

CFOs plan to increase product prices at their own companies 2.30 percent in the next 12 months, compared to 1.85 percent last quarter and 2.07 percent in the first quarter of 2007. Companies expected a price increase of 2.53 percent in the third quarter of 2006.

Full survey results are available at www.cfosurveys.com or from Jamie Renninger at jamie.renninger@fd.com. For more information, visit www.fei.org/global.

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