17 11 2015

Finance chiefs feel less confident due to eurozone woes

Large poll of chief financial officers finds confidence is waning in corporate spending and the overall economy, even as profits improve

Confidence is draining away from finance bosses throughout Europe as ongoing fears about the economic health of the eurozone keep firms from taking a risk on spending, even as their own performance improves.

Just one in four chief financial officers at large companies is more confident about their business than at the start of the year, according to a survey of almost 1,300 bosses carried out by Deloitte. This figure has fallen from 33pc to 25pc in the past six months.
Optimism is at its weakest in northern European countries, including the UK, where just 18pc said they felt better about the prospects for their business, compared to 47pc declaring confidence in Portugal, which is reeling from an uncertain election result.
While two-thirds of CFOs expect their firm’s revenues to rise in the next year, just four in 10 intend to increase capital spending, and 15pc believe expenditure will shrink. On average, 35pc of CFOs expect staff numbers to increase over the next 12 months, with 22pc expecting a decline.
Companies have stashed away more money in the last year rather than deploy it in potentially risky investments. Research by Moody’s over the summer found that cash piles at European firms rose 6pc to €870bn during 2014.

David Sproul, senior partner at Deloitte UK, said that companies had reason to be more upbeat about their prospects. ‘’Volatility and geopolitical risk have always been around and worries about external risks have definitely weakened business sentiment but, in terms of cash balances and access to capital, large corporate balance sheets have rarely been as strong,” he said.
“This provides a strong impetus for companies to expand and the UK is well-placed to lead the way on this.”
As financial bosses across all sectors lose enthusiasm for the prospects for their business, bank customers are also struggling to renew their trust in large financial firms.
The Financial Services Compensation Scheme said banks need to cut bonuses, reward loyalty and help customers shop around if they want to win customers’ trust.
The scheme, which guarantees deposits up to £75,000 from January, aims to promote trust and stability in the banking system, and to prevent a run on a bank from bringing down the institution.
But its research shows that more than just the guarantee is required to encourage people to trust their banks.
“Financial services firms are perceived to be offering huge bonuses to senior managers, regardless of performance, whilst keeping salaries for branch staff low. Financial services firms have a worse reputation on this issue than any others, being seen as greedy rather than benevolent or fair,” the FSCS’ report said.
“Consumers also do not believe that firms’ interests are aligned with their own, so that they will be suspicious of banks claims on pay. Closing this trust gap requires visible action, not words and reassurances.”