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After sharply increasing their foreign-currency hedging in the aftermath of Lehman Brothers' 2008 collapse and the subsequent global financial crisis, companies have pulled back this year, with 61% saying they manage exchange-rate risk, according to a new survey from treasury-consulting firm TreaSolution Inc. in Chicago.
Before turmoil began engulfing the markets when the collapse of Lehman and Bear Stearns highlighted concerns about counterparty risk, 48% of treasurers in the 2007 annual survey said their companies took measures to guard against exchange-rate movements that could hurt their results. That shot up to 71% in 2011, as the euro zone's sovereign-debt troubles came to the fore, before decreasing this year, the survey showed.
The recent pullback aligns with broader trends in global currency markets, where trading volumes have fallen significantly. Average daily trading volume hit $4.7 billion in 2011, but that figure doesn't reflect a dramatic falloff in volumes at the end of last year and the first quarter of this year, the Bank for International Settlements reported in March.
Increased volatility in currency markets also impacted treasury departments' hiring, the survey showed. Today, staffing levels have retreated to an average of 1.62 staffers working on exchange-rate risk per company, compared with 2.04 employees in 2010. Companies had assigned an average of just 1.52 employees to the task per firm in 2009.
Treasurers are cautiously optimistic about this year's economic situation compared with last year, with 48% saying the economy will improve, 41% saying it will stay the same and 11% saying it will worsen.
Those answers reveal a sunnier mood than in 2009, as the global financial crisis was ending, when 62% of the treasurers said the economy would fare more poorly than in 2008.
The treasurers in the survey aren't as worried about doing their jobs as they were in 2010, when a majority of treasurers said managing financial risk, bank relationships, debt, and investments had become more challenging than in the previous years. This year, only financial-risk management was considered more difficult given companies have become more careful about their borrowing.
"Corporations are looking at counterparty risk and wondering, 'Whom should we be doing business with?'" said Daniel Carmody, TreaSolution's managing director.
The number of banks each treasurer uses has dropped sharply to an average of 15.35 bank this year from an average of 23.45 in 2007. Treasurers also have cut the number of bank accounts their companies use, lowering it to 190.98 this year from an average of 245.96 in 2007.
Instead, banks are using loans to tie their clients more closely to them, the survey results show. Although the proportion of companies in the survey that have a credit facility from a bank remained steady from 2008 to 2012 at around 84%, the treasurers said this borrowing capacity has a greater effect now on their banking relationships, with 78% saying it plays a role in influencing which banks the companies use. In 2008, that figure was 72%; in 2010, when corporate credit was tight, the percentage was 83%.
The bank with the highest number of cash-management clients among treasurers in this year's survey was J.P. Morgan Chase & Co. (JPM), followed by Bank of America Corp. (BAC). Citigroup Inc.'s (C) Citibank and Wells Fargo & Co. (WFC) tied for third place.
This year's survey included treasurers and other senior financial executives representing 56 companies. The vast majority of the respondents, 84%, work at U.S. companies. One-quarter are with companies that have more than $5 billion in annual revenue, 39% are from companies with revenue between $1 billion and $5 billion, and the remainder work for smaller firms.
-By Chana R. Schoenberger, Dow Jones Newswires; 212-416-4803; email@example.com; @djfxtrader