When treasurers gathered in Manchester last May for the ACT Annual Conference the world looked an uncertain place. The collapse of Lehman Brothers seven months previously had sent shock waves around the world which were still reverberating as delegates met. The bankers, not to mention their treasurer clients, were still coming to terms with a world in which governments had taken large stakes in banks to stave off financial meltdown and all were trying to work out what that would mean in the long term. For treasurers, risk management and especially refinance risk was uppermost on the agenda. But even as the delegates met in 2009 evidence was emerging that big business was finding the answer to its liquidity needs through the corporate bond market. It was a trend that ran throughout the year.
Nearly a year later and as treasurers once again converge on the north west of England most can be satisfied that the most gloomy of predictions have not come true. There have been no further massive scares in the financial system, and bankers have started to re-engage. Uncertainty does remain over banking, especially over topics such as the future shape of regulation and access to credit (where talk has significantly outweighed action), so the knock-on effects on corporates are unquantifiable at present.
The non-financial corporate sector has probably withstood the recession better than may have been expected. Receivers and administrators have had few assignments from the larger end of the corporate spectrum; the economic downturn so far has been felt by Britain’s smaller companies.
However, those businesses, big or small, built up on the back of neverending public sector contracts will be revisiting their business model with some haste.
Specific corporate concern aside, even if treasurers can conclude that the worse of the crisis may have blown over, the outlook remains uncertain. For the UK the most immediate issue on the horizon is the general election: polls and newspaper headlines indicate that many voters are embracing the prospect of a hung parliament. Traditionally such a prospect has sent shivers of anxiety through the markets, though some City analysts have recently decided that there may be an advantage in such a situation.
Away from the political risk, treasurers and bankers are starting to look at financing risk. Figures suggest a glut of refinancing is on the table for 2012 and in the context of promised withdrawal of government support for the financial sector around the same time, treasurers would be wise to keep focused on credit and liquidity risk.
Peter Williams
Editor