Currency Losses Decline

In a recent survey of 296 North American and European multinational companies for the fourth quarter of 2016, they lost a combined $10.47 billion due to currency swings, down considerably from $36.85 billion a year earlier. The average effect of these swings on EPS was $.04. The currencies that were mentioned the most as causing losses were the British pound, the euro, The Japanese yen, the Brazilian real and Canadian dollar.

International Risk

Political risk exists in varying degrees, but the most severe is appropriation of a company's assets. GM became the latest company to have its assets appropriated in Venezuela as the government of that country took control of GM's remaining plant. The plant had stopped producing cars in 2015, manufacturing only spare parts since. GM joins a list of companies, including more than 60 oil companies, meat processing plants, rice farms, and the Manpa toilet paper plant, that have had assets seized by the Venezuelan government. In March, ExxonMobil had parts of a $1.4 billion award related to seizure of its assets by the Venezuelan overturned.

2016 Executive Compensation

Equilar, an employee compensation company, released the Equilar 100, CEO compensation at the largest 100 companies by revenue. Leading the list for 2016 was Thomas Rutledge, CEO of Charter Communications, who made about $98 million. In a distant second place was Mark Parker, CEO of Nike, who took home about $47.6 million. Warren Buffett, CEO of Berkshire Hathaway, brought home only $487,881 during 2016, the only CEO on the list to make less than $3 million. Of course you needn't worry for him, Warren is still worth about $73 billion.

The Cost Of Ethics

Back in October, we discussed how the unethical behavior at Wells Fargo cost the company business with California and Illinois. What we haven't discussed about the incident is the personal cost to former CEO John Stumpf and former community banking head Carrie Tolsedt. When Stumpf resigned, he gave up $41 million in pay. Evidently, the company's Board of Directors felt this wasn't enough as they announced that Stumpf would be forced to give back an additional $28 million in pay. For Carrie Tolstedt, she forfeited $19 million in pay when she resigned. The Board announced today that it was retroactively terminating her for cause and seeking to claw back an additional $47.3 million in pay.

Finance And Sustainability

Although many think that sustainability and finance don't mix, sustainability is a major component of any corporation. For example, the availability and cost of a major component used in a project can dramatically affect the length and costs of that project. Pressed by investors, CFOs are now starting to discuss sustainability openly. One of the difficulties of such discussions is that a primary role for the CFO is to quantify the financial aspects of sustainability. For example, what are the costs of a natural resource used in production in 10 years? Such inputs are an obvious target for scenario and sensitivity analysis. 

Commercial Paper Issuance Falls

In March 2016, an average of 95 AA-rated companies issued commercial paper per day. On March 29, 2017, only six such companies issued commercial paper. The reason behind the dramatic decline in commercial paper issuance is regulations enacted by the SEC to reduce risk in money market mutual funds. Historically, all money market funds had a net asset value (NAV) per share of $1. If the NAV dropped below $1, it was known as "breaking the buck" and had only occurred a limited number of times. In 2008, the Reserve Primary Fund became the largest money market fund to break the buck. In an attempt to reduce risk, the SEC changed the rules for institutional money market funds that means the NAV of these funds will not be pegged at $1. The result was a flight from institutional money market funds, reducing the availability of these funds as customers of commercial paper. This has made it more difficult for companies to raise short-term debt.

Loonie Taking Flight?

Since 2012, when the Canadian loonie reached parity with the U.S. dollar, the currency has taken a nose dive, dropping to a low of C$1.46 in early 2016. One benefit for Canada is that the cheap loonie created a trade advantage, helping that country's exports and benefiting the economy. With a better economy, whether the loonie will once again take flight is an important consideration for U.S. companies doing business in Canada. Strengthening of the loonie will increase the cost of goods imported to the U.S. from Canada, thereby reducing profits. These companies can lock in costs with forward contracts for commodities, or by hedging currency risk with futures, options, or swaps.

IPO Market Up

During the first quarter of 2017, 25 companies went public, raising $9.9 billion, the highest amount raised in the quarter over the past three years. Snap was the largest IPO in the quarter, raising $3.4 billion. There are currently 62 companies in the pipeline. These companies are expecting to raise $17 billion, a relatively thin pipeline.