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TD Bank: Middle-Market CFOs More Invested in Growth and Expansions

November 07, 2013, 07:24 AM
Filed Under: Economic Commentary
Related: Greg Braca, TD Bank

A new national survey from TD Bank reveals that middle-market and corporate CFOs are more confident about both their organizations' ability to manage financial risk and the financial prospects for their companies, indicating the potential for increased business investment in the months ahead.

"What we're seeing, both through this survey and in our interactions with clients, is a more positive outlook about the economic environment and the business opportunities coming out of the recession," said Greg Braca, Executive Vice President and Head of Corporate & Specialty Banking at TD Bank. "Well over a third of the CFOs surveyed expressed that they're more confident in the U.S. economy, and more than half viewed their organizations' prospects in the same vein. CFOs feel better equipped to manage risk, which will enable them to take a more active approach to investing and expansion, even if the economy improves at a slower pace than we'd like."

Nearly two-thirds of respondents reported being more confident in their ability to manage risk, with 25 percent of CFOs sharing an increased appetite to take on risks. The enthusiasm is tempered somewhat by the prospect of future regulatory change and uncertainty, with more than a third of respondents naming regulation as their top concern moving forward.

Proactive Risk Management Breeding Confidence
Many respondents said that since 2008, their organizations have taken proactive measures to manage risk through internal controls and procedures, increased accountability and evaluation of business relationships. The TD Bank survey found that more than a quarter of organizations addressed concerns, primarily by:

  • Increasing visibility into the company's cash position (49.7 percent)
  • Increasing and enhancing risk reporting (38.3 percent)
  • Adopting a more conservative approach to financial risk (36.9 percent)

Looking beyond their internal risk management practices, executives reported strengthening their evaluation of their vendors' and suppliers' risk management practices (44.3 percent). In fact, 40 percent of the organizations terminated business relationships where the company carried too much risk. Middle-market executives were more likely than their corporate counterparts to terminate these relationships, and more than 35 percent reported managing vendor relationships as one of their top risk management challenges.

"Given the uncertainty and difficulties created by the recession, it's not surprising that companies are more careful about the way they manage risk, but it's a positive outcome and a trend we hope to see continue over the long-term," said Fred Graziano, Executive Vice President and Head of Regional Commercial Banking for TD Bank. "With a risk-minded financial partner like TD, these companies have a great opportunity to take advantage of the low interest rate environment and confidently begin reinvesting in their business."

Challenges Remain, But Factors Favor Increased Investments

According to TD Bank's survey, senior finance executives say they are most concerned about the potential negative impact that economic uncertainty (67.5 percent), regulatory changes (66.9 percent) and the increased cost of doing business (66.2 percent) may have on their ability to manage their companies' finances over the coming year.

Relative to their individual challenges in their roles within their organizations, CFOs said their ability to accurately forecast financial risk (53.3 percent), managing relationships with vendors and suppliers that carry risk (36 percent), and not having enough or accurate data to evaluate risk (28.7) are their biggest challenges.

The middle-market appears more invested in growth and expansions, with only 30 percent of respondents viewing an increased investment as having a potentially negative impact on their companies' finances. Meanwhile, corporate CFOs are taking a slightly more conservative approach to expansion as 44 percent expressed that they are conscious of the potentially negative impact on their business if they are very active in the next 12 months.

Although corporate CFOs trend more conservative on investment in expansion, they remain confident in their ability to secure credit. Overall, executives reported only slight concern regarding cost and availability of credit or risk appetite, indicating that executives are resourced to be more active in 2014 and activity levels will depend more on conditions in Washington.

"Regardless of how the economy ultimately performs, we are focused on building relationships with and supporting our customers to help them take advantage of business opportunities, now and in the future," Braca said.

TD Bank polled senior finance executives, including CFOs, comptrollers, treasurers and directors of finance, across the nation to understand their perspectives on financial risk management as well as their thoughts on the overall economy. The survey was conducted in September and October 2013 by ORC International, and surveyed a total of 150 executives, half at companies with annual sales of $50 million to less than $250 million (middle-market) and half at companies with annual sales greater than $250 million (corporate).

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