CFOs see no credit upturn in near future

LONDON (Reuters) - Optimism among Britain's company finance directors has deteriorated rapidly in recent weeks, with over half now not expecting a recovery in credit conditions until 2010 or later, a survey by Deloitte said on Monday.

The report, called "Digging in for the Downturn", said with chief financial officers planning for a prolonged period of distress in credit markets, cost cutting and cash preservation had come to the fore.

"More than half of CFOs plan to cut current employee numbers and capital spending, up from 38 percent six months ago," the report said. "70 percent expect to cut future hiring and 82 percent to reduce discretionary spending.

"The biggest increase has been in the proportion of CFOs contemplating moving capacity offshore (more than doubling from 13 percent to 29 percent) and reducing dividends (a fivefold rise to 16 percent)."

The report said most CFOs thought credit conditions were unlikely to improve before the second half of next year, and 53 percent do not expect a recovery until 2010 or later.

The report said a growing readiness to contemplate such options as offshoring and dividend cuts testified to the accelerating pace of the slowdown.

The survey of 105 chief financial officers took place between September 12 to September 30, as struggling banks such as Lehman and Bradford and Bingley hit the headlines but before the British government announced their plans for a bail-out of the sector.

The survey said the liquidity problems in the banking sector had increasingly led to a squeeze on the supply of credit to corporate firms, with 89 percent of respondents saying credit was hard to obtain, compared with 48 percent a year ago.

Deloitte said its UK report surveyed the finance officers of 28 companies in the FTSE 100 share index, a further 42 FTSE 250 groups and the remainder from FTSE small cap groups, private companies and UK subsidiaries of major companies listed overseas.

The survey also showed a shift in attitudes to how companies financed themselves, with a majority of CFOs rating bank borrowing as being unattractive, compared with last year when almost three quarters of CFOs saw it as attractive.

Corporate debt issuance also saw a very sharp drop in popularity, leaving it even less attractive than equity issuance.

The report said the shift in finance officer's views suggested the wider, non-financial corporate sector was heading for a period of debt reduction, with more corporates planning to reduce gearing than raise it.

(Editing by Greg Mahlich)