Where's Corporate Cash? In the Bank
Two out of
every five dollars companies have in their short-term balance are placed in
bank accounts, according to a survey of finance and treasury executives.
Over
the past year, treasurers and CFOs have increasingly pursued the corporate
equivalent of putting their money under the mattress: placing most of their
outfit's short-term cash in bank deposits, rather than in such things as
commercial paper, Eurodollar deposits, or even treasury mutual funds or
T-bills.
Indeed, two out of every
five dollars companies have in their short-term balance are placed in bank
accounts. Corporations have been depositing about 42% of their company's
short-term cash deposits in bank accounts this year, compared with 37% in
2009 and 25% in 2008, according to a recently released survey of 337 senior
finance and treasury officials conducted by the Association for Financial
Professionals.
In
contrast, investments in mutual funds invested solely in Treasuries markets
dove to about 9% this year from 16% in 2009; investments in Treasury bills
themselves were off slightly, to 8% from 9%; Eurodollar deposits sunk to 3%
from 6%; and commercial paper dropped to 3% from 4%.
Overall,
companies are putting about 74% of their short-term cash into "three
safe and liquid vehicles": banks, money market mutuals, and U.S.
Treasury securities, according to the AFP report on the survey. During the
2006 reporting period, in contrast, they socked away just 56% of their
short-term cash there, "indicating they had more confidence in higher
yielding investment alternatives."
Without
elaborating, the survey found that some of the cash is going to
"improvements in working capital." Companies "are making
things more efficient as opposed to [putting their cash] in capital
investment," Mike Connolly, treasurer of Tiffany's and vice chairman of
the AFP, tells CFO. The move, he adds, is an "efficiency play to
hold on to cash for the long term."
While
companies are currently sitting on growing amounts of short-term cash, however,
the trend will lessen because of improving business conditions, according to
the survey. For instance, a plurality of companies (43%) boosted their
balances of cash and short-term investments in the six months leading up to
May. But just 30% expect growth in the size of their cash and short-term
investment holdings over the next year, AFP found.
Underwritten by Promontory
Interfinancial Network, a private company that offers financial services to banks
and broker-dealers, the survey was conducted in May and based on responses
from executives at a range of companies with annual revenues over $500
million.
Article was earlier published in one the
reputed Financial magazine
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