CFO risk appetite at seven year high

BY Richard Summerfield

Despite ever increasing uncertainty surrounding the economy of the eurozone and emerging markets, risk appetite among the chief financial officers (CFOs) of the UK’s largest firms is at a seven year high, according to a new report from Deloitte.

Deloitte surveyed 118 CFOs of FTSE 350 and other large private UK companies for its ‘The Deloitte CFO Survey Q3 2014’ and found that British companies are feeling more confident about taking on business risk than at any other point since 2007. The growth in CFO risk appetite has been predicated on a rebound in the US economy, improving UK growth and the current ease of access to finance. Seventy-two percent of CFOs surveyed said now was an opportune time to take risk onto their balance sheets, up from 65 percent of respondents in Q2 2014.

"With a resurgent US economy, good growth in the UK and plentiful liquidity, CFOs have shrugged off the effects of rising uncertainty and weakness in Europe, sending corporate risk appetite to a seven year high,” said Deloitte chief economist Ian Stewart. “Expectations for corporate revenues and margins remain close to the four year high seen in Q2.”

Yet despite the uptick in risk appetite, perceptions of financial and economic uncertainty also rose in the third quarter for the first time in two years. Fifty-six percent of CFO’s surveyed noted that the level of financial and economic uncertainty that their firms were facing was above normal, high or very high. In Q2 that figure was just 49 percent.

Sentiment about the eurozone has deteriorated significantly in 2014, with a net percentage of -39 percent of CFOs seeing improving prospects for the region going forward, down from +54 percent in Q1 2014. Confidence in emerging markets also continued to decline, with a net balance of -13 percent seeing an improvement. Despite those concerns, CFOs are considerably more optimistic about UK prospects, with a net balance of +85 percent reporting improved growth prospects over the last six months.

In many respects, political upheaval was more of a concern for CFOs than any economic issues during Q3. The potential secession of Scotland from the United Kingdom was a contributing factor to rising uncertainty, along with the impending general election and possible referendum on EU membership. CFOs perceived these scenarios as a greater risks to their firm’s prosperity than an increase in interest rates or weaknesses in the eurozone.

Source: The Deloitte CFO Survey

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