Goldman poll hits 5-year low

Goldman poll hits 5-year low
By Lina Saigol in London
Copyright The Financial Times Limited 2007
Published: August 15 2007 03:00 | Last updated: August 15 2007 03:00


Confidence among some of the world's top business leaders has slumped to its lowest level since the third quarter of 2002, suffering from concerns about financial market volatility and mixed US economic data, according to an investment bank's survey.

The Goldman Sachs Confidence Index - which was conducted in the last week of July and the first week of August - is based on chief executives' assessments of business conditions for the coming quarter and regarded as a leading indicator of company sentiment.

The survey shows their outlook for the third quarter of the year has declined dramatically, after buoyant readings in the past few quarters.

The headline reading for the global business outlook for the third quarter stands at 33 - a steep fall from the reading of 57 for the second quarter. A score of 50 marks the dividing line between executives who think conditions are improving and those who feel they are worsening.

However, the collapse of confidence has not yet affected the willingness to do deals and several chief executives in several sectors see the credit crunch as a chance to outbid their private equity rivals as the squeeze forces them to the sidelines.

"There is an enormous amount of uncertainty about the outlook in the near-term, but if the credit shock hurts private equity, it may also provide an opportunity for corporates, especially as deal multiples come down," said Sandra Lawson, a global economist at Goldman Sachs.

This month, Imperial Tobaccooutbid CVC Capital Partners to buy Altadis, the Franco-Spanish tobacco company, after the private equity group was unable to finance its deal. In March, Schering Plough, the US pharmaceuticals group, beat private equity firms in the auction for Organon Biosciences, an Akzo Nobel-owned pharmaceuticals unit.

Tom Cooper, European head of mergers and acquisitions at UBS, said corporate buyers should be best placed to benefit from the correction. "There could be a window of opportunity for investment-grade buyers, in particular. Unlike private equity, strategic buyers can bridge funding gaps with their own paper," he said.

The confidence index also showed little change in the readings for capital spending on factories and equipment - the traditional engine of profit and economic growth.

Although the global reading has fallen from 68 in the second quarter to 57 in the third, US chief executives expected conditions to improve slightly.