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.

Discuss

Your email address will not be published. Required fields are marked *