A Flight to Quality

U.S. companies are prepared to settle for lower investment returns in exchange for reduced risk on short-term investments, according to a recent survey of 293 global CFOs, treasurers and assistant treasurers by Greenwich Associates. The respondents said their corporations have reduced return targets on their 2008 cash investments to 3.7% from the 4.9% they reported last May.

The reduction in target returns represents a general flight to quality, says Chris McDonnell, a Greenwich Associates vice president. “We’re clearly seeing a shift that favors high quality investments,” he says. U.S. companies were allocating 78% for AAA-rated vehicles when the survey was conducted in February, up from 71% at the time of Greenwich’s last survey in May 2007. At the same time, allocations to AA-rated vehicles dropped to 16% from 17.1% in the same period, and single-A rated allocations fell to 5.0% from 7.5%, according to McDonnell. Moreover, none of the respondents reported buying investment grade or unrated instruments.

Greenwich rushed out the February “special credit crisis” survey in February to take the pulse of financial executives at a time of great market turbulence. “We anticipated seeing people being more conservative in light of current environments,” says McDonnell. “But we wanted to get a reading then, rather than wait for our next survey this summer.”

In the same survey, which included European financial executives, Greenwich found a contrasting view. European companies actually increased their 2008 target returns on cash investments to 5.5% in February from 3.8% in October 2007. “European cash portfolios are much different and much more aggressive than those found in the U.S., and they do not seem to be upgrading credit quality to the same extent as their peers in other regions,” says Greenwich consultant Don Raftery. In Europe, he says, AAA-rated investments make up just 22% of cash assets, while allocations to AA-rated investments average 47% and single-A allocations average 22%.

Article found in Corporate Finance

Pensions Get a Red Eye

The news keeps getting worse for large corporate pension funds.

Just one week after a UBS Global Asset Management survey indicated that U.S. pension funding ratios fell an average 11% in the first quarter and 24% in the past nine months, a Mercer survey found that changes in the value of the assets and liabilities of S&P 1500 companies’ pension plans wiped a collective $70 billion off their balance sheets. In just three months, says Adrian Hartshorn, a principal in Mercer’s financial strategy group, the group has gone from being overfunded with a funded ratio of 103% to only 99% funded at the end of March.

Hartshorn says the losses won’t be reflected in 2008 earnings, because, under U.S. accounting rules, pension costs generally are determined using market data at the end of the prior reporting period. For most companies this means that the 2008 pension expense was based on Dec. 31, 2007, market conditions – prior to the market declines of the first quarter, Hartshorn said.

Companies could be forced to increase cash contributions if the markets don’t recover, Hartshorn said. Meanwhile, companies are changing investment strategies to reduce the impact of pension plan volatility on corporate financial statements, according to Hartshorn. Some, for example, are trying to match fixed income durations to their liability durations, investing more heavily in bonds, or for some more sophisticated plan sponsors, by entering into interest rate swaps, says Hartshorn. However, these actions often leave the risk of equity market volatility unaddressed.

“The desire to manage interest rate risk is a step in the right direction,” said Hartshorn. “However, companies need to implement risk management strategies carefully and consider which risk they are seeking to mitigate.”

Article found in Retirement & Benefits

Careers

American Commercial Lines Inc., the $1.1 billion marine transportation and service company headquartered in Jeffersonville, Ind., appointed Thomas R. Pilholski senior vice president and CFO. Pilholski, 52, takes over for Christopher A. Black, who left the company in February to pursue other interests. Before joining the American Commercial Lines, Pilholski, who has more than 20 years of experience in senior financial roles, was CEO of S3I LLC. Previously, he was CFO of Eagle Picher Inc. and CFO of Honeywell Consumer Products Group.

Gibraltar Industries Inc., the $1.3 billion manufacturer, processor and distributor of products for the building, industrial and vehicle markets based in Buffalo, N.Y., named Kenneth W. Smith senior vice president and CFO. Smith, 57, succeeds David W. Kay, who retired after four years with the company. Smith joins Gibraltar after eight years as CFO of Circor International Inc. Before joining Circor, Smith was vice president of finance for North Safety Products Inc. for four years.

Dycom Industries Inc., the $1.1 billion provider of specialty contracting services located in Palm Beach Gardens, Fla., appointed its vice president and chief accounting officer, H. Andrew DeFerrari, CFO. DeFerrari, 39, replaces Richard L. Dunn, who left to pursue other interests. DeFerrari joined the company in 2004 as controller, becoming vice president and chief accounting officer in 2005. Previously he was a senior audit manager with Ernst & Young LLP.

Movado Group Inc., the $533 million watchmaker based in Paramus, N.J., appointed Sallie A. DeMarsilis principal accounting officer and CFO. DeMarsillis, 43, succeeds Eugene Karpovich, who will remain a company officer and a senior member of its management team. Before joining Movado, DeMarsillis was senior vice president of Warnaco Group Inc., a clothing wholesaler.

ImClone Systems Inc., the New York-based $591 million biopharmaceutical company, announced the appointment of Kenneth J. Zuerblis as senior vice president and CFO. Zuerblis, 49, replaces Peter R. Borzilleri, who returned to his position as the company’s vice president of internal audit. From 1994 to 2005, Zuerblis was CFO of Enzon Pharmaceuticals Inc., which he joined in 1991. Prior to Enzon, he spent 10 years at KPMG LLP, in various advisory roles with increasing responsibility, including strategic business, tax, audit and debt and equity financings.

Check Point Software Technologies Ltd., the $731 million internet security vendor based in Tel Aviv, Israel, named Tal Payne CFO, effective mid-2008. Payne, 36, will replace Eyal Desheh, who will leave Check Point after eight years to become CFO of Teva Pharmaceutical Industries Ltd. Payne will join Check Point after nine years at Gilat Satellite Networks Ltd., where she has been CFO since 2005. Before that, she was a CPA and manager of Kesselman & Kesselman, PriceWaterhouseCooper’s Israel office.

Verifone Holdings Inc., the $904 million provider of electronic payment solutions based in San Jose, Calif., announced the resignation of executive vice president and CFO Barry Zwarenstein. Zwarenstein, 59, resigned after an internal audit confirmed that the company overstated its operating income for the first three quarters of 2007. Zwarenstein will leave after the company restates its financial reports for the affected period. Verifone has begun a search for a new CFO.

Article found in Careers

HedgeRx Retools for FAS 157

Reval.com Inc. has launched Version 8.0 of HedgeRx, its Web-based derivatives hedging and risk management application. The latest upgrade features enhanced hedge accounting features and improvements to the FAS 157 module, originally introduced in October 2007. “The FAS 157 module is what we believe to be the most comprehensive in the industry as we have the ability to adjust the fair value of derivatives by the credit component depending on whether the derivative is a liability or an asset,” says Reval CEO Jiro Okochi.

Version 8.0 also includes a new, fully integrated credit derivatives module that lets companies book single-name credit-default swaps that they have written as an alternative to investment in an issuer or purchased as means to protect a credit or index. “The CDS module is fully integrated into HedgeRx and will have all the controls and process that our interest rate, FX and commodity modules also employ,” notes Okochi.

Upgrades to HedgeRx are delivered twice a year over the Internet using the software-as-a-service (SaaS) model, “so no one gets left behind in version upgrades,” says Okochi. “This release was very important given the need around 157 and our credit-default swap module,” Okochi explains.

Article found in Tools & Technology, Compliance

SCORE Scores on GRC

Keane Business Risk Management Solutions (BRMS) has introduced SCORE 3.3, an upgrade of its Web-based governance, risk and compliance (GRC) application. The upgrade gives managers one-click access to customizable, enterprise-wide automated risk alerts and dashboards. “The goal of v3.3 was to address a significantly increased need for transparency, interface between risk, compliance and internal audit, and integrate processes in GRC,” says Peter Teuten, president of Keane BRMS.

Version 3.3 includes optional controls to ensure that evidentiary documentation and justifications are recorded during internal audits, and a customizable new audit issue history function that can generate both graphical and textual reports that provide historical views of audit issues grading and completion progress over periods of time. Teuten adds that compared with previous versions, SCORE 3.3 allows “broad flexibility in the delivery and execution of management processes so that our customers are empowered rather than constrained by the technology.” As always, though, clients will continue to benefit from the real-life experience of risk managers, including Teuten, who also is inventor and chief architect of the SCORE platform. “Other tools evolved from financial applications or specific regulations,” he notes, “but SCORE was designed with the insight into the needs of enterprise risk management and a principles-based approach that can only be truly captured with the benefit of practical experience.”

Article found in Risk Management, Tools & Technology