Before the panic arising from the COVID-19 pandemic had fully set in, the Association for Financial Professionals conducted its annual corporate liquidity survey. The results from the poll of 375 treasury and finance executives in March showed that “financial professionals could see the gathering storm,” said AFP President Jim Kaitz.

About 51% of respondents revealed that they had increased their short-term investments in products offered by banks compared with 12 months ago. That was the highest percentage of finance executives who had chosen to stash more cash in a bank in three years and a reversal of a downward trend that began in 2015. There’s no reason to think that number wouldn’t have been higher if the survey had been taken just a month or two later.

It’s not a total surprise, as many chief financial officers were expecting a U.S. recession in late 2020 or 2021 even before COVID-19 hit. But the results clearly show companies battened down their cash management and short-term cash investment tactics quickly. And they will most likely continue to seek safety above all else when it comes to short-term cash since interest rates are likely to remain low for months.

“Bank deposits saw an increase for the first time in five years, and that’s not a coincidence,” said Kaitz. … “With companies needing more access to liquidity and drawing down on credit facilities, their relationships with their banks will become more important than ever.”

Beyond banks, the majority of organizations continued to allocate a large share of their short-term investment balances— an average of 77% — in safe and liquid investment vehicles: besides bank deposits, that means money market funds (MMFs) and Treasury securities. The most popular kinds of bank deposits used were interest-bearing deposit accounts (62%), time deposits (46%), and structured bank deposit products (31%).

About one-quarter of the respondents said they would be increasing their use of bank vehicles in the next 12 months, 17% planned to do so with government and Treasury money market funds, and 12% with Treasury bills.

Safety continued to be the most-valued short-term investment objective for 62% of organizations, followed by liquidity at 34% and yield at a distant third with 4%.

During the COVID-19 crisis, shorter investment maturities will likely be preferred, as companies will have less certainty about whether their customers will pay on time.

How do treasury executives and CFOs pick the banks for their deposit cash? About 93% of respondents indicated they considered the overall relationship with their banks to be the primary driver in bank deposit selection. And about 73% indicated that the credit quality of a bank was a deciding factor in determining where to maintain balances.

Some weigh other factors as well: 52% do consider whether the bank is offering compelling interest rates, 40% consider the simplicity of working with the bank, and 33% consider the earnings credit rates they receive.

During the COVID-19 crisis, shorter investment maturities will likely be preferred, as companies will have less certainty about whether their customers will pay on time. In many cases, treasury departments were already operating this way in March: on average, 45% of all short-term investment holdings were in vehicles with maturities of one day or less, while 18% were in vehicles with maturities of between 8 and 30 days. Another 10% of the vehicles had maturities between 2 and 7 days.

For cash sitting outside the United States, the strategies were also very conservative. The majority of cash and short-term investments held outside the U.S. was in U.S. dollars (52%) and bank products. U.S. dollars were followed in popularity by euros (25%), Canadian dollars (24%), pound sterling (13%), and renminbi (16%). Sixty-nine percent of the organizations held some amount of cash outside of the U.S. — higher than the 63% reported in 2019. The share increased to 79% for publicly owned organizations.

At least as of March, many of the companies in the survey seemed well-positioned to ride out an economic downturn. About 31% said their cash balances were “much larger” or “somewhat larger” than 12 months ago. The most-often cited driver of higher cash holdings was increased operating cash flow, followed by increased debt outstanding (from having tapped the debt markets). Decreased capital expenditures (12%) also played a role.

“Creating a liquidity buffer will be important [for companies] as there is tremendous uncertainty regarding when there will be a return to any semblance of normalcy,” AFP wrote in its report accompanying the survey. “Additionally, it is challenging to forecast when to expect an uptick in the economy. While some industries may rebound relatively quickly, the impact on others will be felt longer — especially among those which are capital-intensive with very limited revenue prospects.”

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