Wednesday, November 5, 2008

CFOs: Get Rid of Mark to Market

Fair share of CFOs want end to fair-value accounting, short-selling

CFOs are not only bracing for more regulation, they apparently welcome it.

According to the most recent survey of chief financial officers conducted by Financial Executives International, an overwhelming 80% of finance chiefs felt increased regulation and oversight are needed in the financial sector to correct the current market crisis.

Not surprisingly, over a third of the CFOs surveyed want permanent restrictions placed on short-selling of all companies. Respondents also cried out for increased regulation of hedge funds and credit default swaps, as well as a reinstitution of mortgage lending standards.

What’s more, a fair percentage of finance chiefs (46%) want regulators or standards-setters to ditch mark-to-market accounting (except for publicly traded companies with no liquidity issues)

The survey also revealed that liquidity concerns still dog finance departments. Close to 70% of the nearly 300 CFOs interviewed said they anticipate access to credit will continue to tighten over the next six months. Those finance chiefs said the lack of credit will cause them to take precautionary measures and make cutbacks.

Overall, the mood of finance chiefs continues to get gloomier. FEI’s CFO optimism index on the U.S. economy fell more than seven percentage points, its largest quarterly decline since the survey began.

“Our survey shows a continued, increasing loss of confidence by these CFOs, and for the first time in several years, they are actually reporting year-over-year reductions in capital investments, technology spending and hiring,” said John Elliott, dean of the Zicklin School of Business at Baruch College, which produces the survey with FEI. Although allocations to those areas had been trending downward, “[CFOs] had continued to report planned increases in these categories through the first half of 2008,” he said.

Looking ahead, most CFOs predicted the Fed funds rate will rise to 1.62% by April 2009 and move up to 2% by next October. The Fed funds rate stood at 2% when the survey was conducted, but the Fed has since cut it to 1%.

When asked to predict the Libor/Treasury spread a year from now, 58% said that it would narrow.

“On average, CFOs responses to the third-quarter survey agreed with many of the recent economic actions taken by the government,” said Cheryl de Mesa Graziano, vice president of research and operations at FEI.
By Matthew Scott at Financial Week

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