Helping treasurers in the challenging economy.

• Author: Davila, Serena
• Position: Washington insights

As the United States faces the greatest economic crisis since the Great Depression, treasurers and chief financial officers in organizations are concerned--and with good reason--about how to manage their companies, preserve capital and raise more capital. Debt and equity markets are less accessible than in recent history--driving treasurers and CFOs to be more creative in accessing capital.

These economic conditions have placed a greater onus on treasurers to monitor the financial soundness of their banks and lenders. The cash crunch has forced treasurers and CFOs to look more closely internally for sources of cash--working capital. Responding to tight capital markets, companies are taking appropriate measures. For example, not long ago, General Electric Co. announced that it would cut its dividends, marking its first such reduction in 71 years.

To exemplify the harsh realities that corporate treasurers are now dealing with, one need only review how the credit rating agencies are reacting. Fitch Ratings Inc. cut long-admired Berkshire Hathaway's credit rating from triple-A to double-A--reasoning that the company's potential earnings and capital volatility were inconsistent with the stability required at the top level.

Surely, now other firms are wondering if their credit ratings will also drop, which adds even more trouble for accessing capital.

On the flip side, the U.S. Securities and Exchange Commission is strictly scrutinizing the credit rating agencies. In efforts to reform the industry, the SEC held a roundtable in April to review the industry's oversight.

Many of the roundtable panelists emphasized the need for transparency in ratings and more competition and accountability. The panelists represented credit rating agencies, issuers, investors and academia. Most on the panel agreed that some kind of reform is necessary.

Treasurers Concerns and the Obama Administration's Response

Treasurers now are consumed with implementing successful strategies for working capital and cash management--involving forecasting, receiving and investing funds for their companies. Obviously, companies want to avoid bankruptcies and must also avoid a short-term liquidity crunch by keeping sufficient current assets to exceed current liabilities.

For treasurers, it's essential to be adept at effective cash management, which can improve liquidity and increase profits.

The Obama administration has aggressively responded to the challenges that corporate...