Cash Management

Treasurers Hoarded Cash in Fourth Quarter, Index Finds

But more of them plan to dish out dollars this quarter, according to AFP's Corporate Cash Indicators.
David KatzJanuary 27, 2016

The net percentage of U.S. businesses that boosted their cash and short-term investment reserves jumped by 10 points during the fourth quarter of last year compared with the previous quarter, according to a prominent index of corporate cash holdings.

However, the net portion of companies expecting to stash cash during the first quarter of this year dove by nine points from the expectations recorded in last year’s third quarter, resulting in a -1 score, according to the Association for Financial Professionals’ Corporate Cash Indicators.

Thus, for the first time since July 2015, CFOs, treasurers, and other finance executives at more of the 200 companies represented by the index said they would decrease their cash and short-term holdings than would build them up.

In the second quarter of last year, S&P non-financial companies reportedly had about $1.4 trillion in cash reserves, the second-highest level in the previous 10 years. Speaking “as a former CFO, sitting on that amount of cash,” says Craig Martin, executive director of the AFP Treasurers Council, “you’re anxious to invest in the business and grow the business, not to sit on assets and cash.” (Martin was CFO and treasurer of Citibank of Maryland from 1990 to 1995.)


Source: AFP

That anxiety may have triggered finance professionals’ willingness to deploy more of their cash reserves in the first quarter of this year, he thinks.

To put that expectation in context, however, it’s important to note that a year ago treasurers and CFOs were expecting their companies to let a whole lot more cash out the door than they’re doing now. This quarter’s expected trend is up 13 points from the January 2015 survey, which reported that the companies expected to cut their cash and short-term reserves to the tune of -14.

(To calculate its cash scores, the association subtracts the percentage of respondents who report “decrease” from those that report “increase” in their cash and short-term investment hoardings. Thus the -1 expected trend in first-quarter 2016 cash reserves is the result of subtracting the 28% of companies that expect to expand their cash and short-term investment balances over the next three months from the 29% that plan to cut those balances.)

Overall, treasurers are continuing to “sit on their hands” when it comes to moving cash out of their reserves, Martin says. One reason, he adds, is that they are waiting to see the effects of the Securities and Exchange Commission’s new money market rules, which take effect in October.

Another factor driving investment conservatism is the very low yields available in the money markets, according to the AFP executive. “So, it doesn’t pay you to take extra risks,” Martin adds. “Treasurers aren’t paid to get an extra ten basis points, but they will lose their jobs if they lose principle.”