The recession gives finance chiefs a lot more to fret over than the plight of banks, yet it’s impossible to ignore such a vital pillar of the economy, particularly when it is under extreme duress and governments’ efforts to help have so far been ineffectual, or worse. But CFOs have to keep their businesses running and can’t wait around for banks to be rescued and reformed by regulators. Few, if any, of the CFOs we spoke to for this special section-in Europe, the US and Asia-are taking a wait-and-see approach. Whether they work in manufacturing, services, utilities, distribution, or even banking, they are focused on what they can do today and tomorrow to get business back on track.
All Stuart Hall wanted was a quiet drink. The CFO of Pace, a Yorkshire-based maker of digital TV set-top boxes, was relaxing in a hotel bar in Hong Kong late one nigh last October, having spent the day studying Chinese acquisition targets. Then his phone rang. It was a colleague in the UK, calling to tell him of rumours that British banks, already in meltdown, might soon be partially nationalised. “I thought that when I got back I’d see tumbleweeds flying down the street and buildings collapsed, like something out of Mad Max,” he recalls.
Yet it was the breaking news outside the UK that really concerned Hall, specifically the unfolding crisis in Iceland, where Landsbanki had entered receivership and had its UK assets frozen by the British government.
That was a problem for Pace, which had been using a $48 million (€38 billion) asset-backed lending facility from Landsbanki Commercial Finance, a UK-based arm of the Icelandic bank.
Fortunately, Hall had prepared for a moment like this. Ever since Pace paid €95m to acquire Philips’s set-top box business at the end of 2007, the finance chief had wanted to bring in joint bankers. After all, he reasoned, the company would double its revenue thanks to the acquisition.
But striking up a relationship with another financier was easier said than done. Despite agreeing with Landsbanki that it could bring in another bank, Pace found the demands of integrating the acquisition too much, and did not sign agreements with any other banks. But it did keep talking to them, which meant that when the line with Landsbanki was pulled, Pace could immediately sit down with three domestic banks to discuss a replacement facility. Indeed, the company ended up with three offers from UK banks, including a £35m (€39m) revolving-credit facility from Royal Bank of Scotland (RBS), its existing clearing bank, which it signed in December.
So everything worked out fine, right? Not quite. Even though Hall says Pace has a good arrangement with RBS-the credit line is cheaper than many he has come across-getting there was tortuous, and constraining. “I have companies in Latin America, America, Malaysia, Hong Kong, China, France, Spain, Belgium,” Hall says. “Every company is its own legal entity. The bank wants to tie you down all over the world with security. That whole process is very, very difficult and doesn’t give you any flexibility. You’ve got to get the bank’s permission for so much.”