Short-term corporate cash is increasingly moving towards banks, according to a new study, with bank deposits now accounting for 51 percent of short-term balances ”“ up from just 23 percent at the height of the last economic cycle in 2006.
Corporate cash stashed in banks is at the highest level in seven years tracked by the Association for Financial Professionals and RBS, which has a large office in Stamford. The AFP Liquidity Survey was completed in May, with respondent senior finance and treasury executives primarily from companies with at least $2 billion in revenue.
The jump reflects elevated corporate investment in ultra-safe vehicles since 2007, AFB and RBS stated, with company investment policies reducing the types of permitted short-term investments. The survey showed that 74 percent of corporate cash balances are now held in one of three traditional investment vehicles: bank deposits, money market funds and U.S. Treasury securities.
“Today, companies are clearly seeking safety and soundness,” said Jim Gifas, head of treasury solutions for RBS Citizens, in a prepared statement. “Across the board, we see that the primary focus is on preservation of capital, and treasurers and CFOs are eager to see how this is being managed on a global scale.”
Companies are continuing to increase cash balances, with 41 percent of survey respondents reporting that their organizations held greater cash balances during the first quarter of 2012 than in the first quarter of 2011. Fewer than three in ten indicate their organizations reduced cash and short-term investment balances during that same period.
More than three quarters of respondents indicate that safety is the most important short-term investment objective for their organizations, with just 21 percent indicating their most important cash investment policy objective is liquidity.
Of companies that increased cash balances, 61 percent had more cash because they generated higher operating cash flows, while 22 percent increased cash by accessing debt markets.
Looking ahead, respondents anticipate elevated cash levels to continue. Close to half of those surveyed expect balances to remain about the same over the next year while 32 percent of respondents expect even larger cash balances. Only 22 percent of respondents expect balances to contract over the next year.
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