The events of September 14 prompted an uncomfortably large number of comparisons to the 1930s, as Lehman Brothers went bankrupt, Merrill Lynch was acquired, AIG sought a massive cash infusion, and rumors swirled about other impending collapses. All of that came on the heels of the unprecedented federal bailout of Fannie Mae and Freddie Mac, which no doubt left many finance executives agreeing with Jeff Burchill, CFO of property insurer FM Global, when he said, "I don't think we've seen the bottom yet."
The most immediate concern for CFOs is access to capital. There will be "much less credit available" a year from now, predicts William Whitt, managing director of the finance practice for the Corporate Executive Board, due to looming regional bank failures and painful deleveraging among survivors. "Many companies will not be able to count on accessing the full extent of their credit facilities" and should be "extra-conservative" in their liquidity analyses, he says (see "Now What?").
The security of bank deposits is also a concern. Burchill says his company was somewhat shielded by the fact that Bank of America — Merrill's acquirer — is its primary U.S. banker. His first step after Lehman's filing, then, was to start investigating the strength of foreign banks that hold FM Global's cash. However, he's still concerned about the long-term health of BofA. "I'm worried about them getting too big, too fast," he says. Standard & Poor's lowered BofA's long-term counterparty credit rating a notch following its announcement of the $50 billion Merrill acquisition (which came two months after its $4 billion takeover of Countrywide).
The availability of investment-banking services could also suffer, though boutique firms may welcome the chance to fill the void — assuming there's a market for deals at all. "There is a real question" as to whether the banks' pain "won't send the world economy into a depression," says Whitt. While central banks will try to avert it, "it is not clear they will be able to prevent it."