I came across an interesting article by Floyd Norris in Friday’s edition of the NY Times (see Corporate Auditors Focusing on Cash and Securities). What I found most interesting about the article is that Floyd seems to be echoing many of the concerns that I’ve expressed in recent posts (see From Old Stories to New, Where’s the Stuff Buried, and Strategy in a Recessionary Environment). The ideas he advances represent an amalgam of those that I’ve discussed. This is not to say that Floyd got his inspiration from my work. In fact, I’d be willing to wager big that Floyd has no idea who I am and has never read a single word I’ve penned. I was just struck by the similarity of opinion.
Consistent with my piece on “Where’s the Stuff Buried” Floyd asks:
What happens when cash really is trash?
He then goes on to acknowledge:
This is important…because there could be more write-downs similar to the $275 million impairment charge taken last week by Bristol-Myers Squibb…
Floyd also recognizes that raising capital has become difficult for corporations recently, and that this will make the operating environment quite difficult for firms with weak balance sheets, consistent with my piece on “Strategy in a Recessionary Environment“.
But what’s most sobering is the trend toward increasing corporate defaults and bankruptcies. I’ve been predicting this for almost a year now (most recently in “From Old Stories to New“). Floyd writes,
The number of corporate bankruptcies filed by leveraged borrowers so far this year is greater than the total filed in all of 2006 and 2007…
I expect defaults and bankruptcies only to increase for the remainder of 2008 and into 2009 (see Analysts Formally Predict Uptick in Defaults). I likewise wouldn’t be surprised to see more than a few high profile bankruptcies (of the household name variety). In my opinion therefore, corporate defaults and bankruptcies will command a good portion of business press attention over the coming months. This is just the beginning…
