Client Call: CFO Perspectives

Episode Summary

Executive Summary: Goldman Sachs leaders discuss how the pandemic is reshaping CFO priorities: liquidity management, access to financing, earnings guidance, and macro outlook. They argue that government and central bank action stabilized markets, reopening debt and equity funding, while near-term investor focus has shifted toward balance sheet strength and cash access. Long term, they expect a gradual economic recovery and a partial reversion to normal valuation and capital allocation metrics.

Main Topics: Liquidity management under crisis conditions (Priority: 5/5): Stephen Scher explains how Goldman managed an abrupt liquidity shock caused by market seizure, operational settlement frictions, margin asymmetries, and client drawdowns, then restored buffers through accelerated fundraising and deposit growth. Earnings guidance and CFO communication (Priority: 5/5): Scher argues that near-term forecasts are unreliable in the crisis, so companies should focus on current conditions, internal scenario planning, and broad directional signals rather than precise quarterly guidance. Policy response and market stabilization (Priority: 5/5): Speakers credit the Fed, ECB, Bank of England, and fiscal programs with calming markets, reopening funding channels, and enabling companies to raise liquidity across commercial paper, IG, HY, converts, and equity. Reopening of financing markets (Priority: 5/5): Susie Scher, Dennis Coleman, and Johnny Fine describe a dramatic recovery in capital markets, with investment grade leading, followed by high yield, converts, and selective equity, often with strong aftermarket performance. Investor behavior and valuation shifts (Priority: 4/5): Scher says investors are temporarily rewarding liquidity, balance sheet strength, and pandemic winners, but over time valuation frameworks will revert toward fundamentals and longer-term performance. Economic outlook and recovery path (Priority: 5/5): Jan Hatzius outlines a deep but likely gradual U-shaped recovery, with sharp GDP declines in the near term, improving activity as infections slow, and continued slack limiting inflation pressure. Long-term corporate balance sheet and cost-base implications (Priority: 4/5): The panel suggests firms may keep higher liquidity buffers, rethink leverage and debt maturity, reassess real estate and operating footprints, and intensify cost scrutiny after the crisis.

Key Arguments: Liquidity planning must account for both predictable draws and sudden operational market disruptions; the crisis exposed plumbing frictions as much as client demand shocks. Near-term public guidance is often counterproductive when forecasting visibility is poor; internal scenario planning should replace overly precise external forecasts. Central bank intervention worked because announcements alone restored confidence and market functioning before every facility was fully operational. Fiscal policy is necessary but harder to implement than monetary policy, so its effectiveness will depend on execution, not just announcement. Investors are prioritizing balance sheet strength, liquidity, and access to capital in the short run, especially for companies directly affected by shutdowns. Capital markets have become highly interconnected: companies can mix debt, equity, converts, and secured financing to build rescue or defensive liquidity packages. Investment-grade issuance has become a primary tool not just for emergency funding but for extending maturities, reducing commercial paper reliance, and resetting revolver capacity. The macro hit is severe but not permanent; as active cases slow and restrictions ease, output should gradually recover, though with significant labor-market slack. Despite massive stimulus, inflation risks are not the base case because government support is filling a private-sector demand hole rather than creating excess demand. Long-term corporate strategy may shift less than many expect, but firms could maintain somewhat higher liquidity buffers and review cost structures more aggressively.

Data Points: Goldman people working from home: 98% - Scher says the firm is functioning exceptionally well with nearly all employees remote. Market funding peak issuance: $105 billion - High-yield bond issuance since the market reopened in April. High-yield year-to-date increase: 53% YTD - Susie Scher says high-yield issuance is up sharply year-to-date. Convertible issuance in April: About $10 billion across 17 deals - Dennis Coleman says the convert market reopened strongly in April. Normal April convert issuance: About $2 billion - Used as a comparison to show how unusual the recent activity has been. Investment-grade year-to-date issuance: $759 billion - Johnny Fine reports unprecedented IG volume. Investment-grade issuance increase: Almost 75% YoY - Year-to-date IG issuance compared with the prior year. U.S. corporate issuance increase: 127% YoY to $410 billion - Johnny Fine highlights the scale of U.S. corporate borrowing. Time to reach $410 billion in 2019: Just after Labor Day - Shows how much earlier 2020 issuance accelerated. Eli Lilly 30-year financing yield: 2.25% - Johnny cites a record low 30-year financing cost. Five-year IG financing dispersion: 1.75% to 9.5% - Illustrates wide spread in pricing across credits. Goldman estimate of GDP hit: Around 15% down from start of year - Jan Hatzius estimates current GDP level loss in the U.S. and globally. U.S. Q2 GDP forecast: -11% year over year - Jan’s quarter-by-quarter outlook for the U.S. U.S. Q3 GDP forecast: -7% year over year - Jan’s forecast for gradual recovery. U.S. Q4 GDP forecast: -5% year over year - Jan’s forecast implies continued weakness but improvement. U.S. Q2 annualized GDP forecast: -34% q/q annualized - Shows the depth of the second-quarter contraction in sequential terms. U.S. Q3 annualized GDP forecast: +19% q/q annualized - Expected rebound as reopening begins. U.S. Q4 annualized GDP forecast: +12% q/q annualized - Further recovery expected into year-end. U.S. headline unemployment forecast: 15% by mid-year - Jan’s expected peak unemployment rate. Broader labor underutilization: About 25% - Jan says broader slack is much higher than headline unemployment indicates.

Pivotal Quotes: "policy may have been enough. That is the announcement of programs by the Fed, notwithstanding the depth of implementation" — Stephen Scher: Describing how central bank announcements calmed markets even before all facilities were fully operational. "the market is rather bullish on technicals in the market and rather bearish on fundamentals" — Stephen Scher: A trader’s observation that policy support had stabilized market mechanics while credit quality concerns remained. "markets are open. All markets are open" — Susie Scher: Summarizing the key message for issuers needing financing across debt, equity, and convert markets.

Implications: CFOs should prioritize liquidity, diversify funding sources, and stress-test scenarios rather than rely on near-term guidance. Capital markets are open, but pricing is uneven; firms with strong balance sheets and proactive financing plans will be best positioned.