“If you’re a cash manager you have to demonstrate you’re adding value,” says Peter Atwater, president of Financial Insyghts, a consulting firm focused on financial services issues and a regular commentator at Minyanville.com.
“Corporate treasurers are saying that if [money market fund and treasurys and other traditional forms of cash and cash-equivalents) can’t get generate good enough returns, they’ll do it themselves. They’ll take the maturity and make the decisions.”
Consider, for example, Google. In its earnings release last week, the company disclosed for the first time that it got cash from securities lending.
It's not alone in doing this, and it’s actually more common than you might think. Google says it has been doing it for three years.
So why disclose it now?
In response to my question, Google said, “We lend out our investments (primarily Treasurys, agencies and US/sovereign-backed securities) and in return we receive collateral in the form of: Cash which we invest and earn interest or securities which we charge a fee, and therefore enhance the overall yield on our investments."
Google's statement continued, “We used to unwind it at quarter end, but starting in Q210 we continued the program without unwinding to enhance our yield. Accounting treatment requires cash collateral received in securities lending to be recorded as an asset, and the obligation to return the cash to be recorded as a liability with an accompanying footnote/disclosure.”
Key in that statement, in my opinion, was the decision to stop unwinding the securities lending trade at quarter’s end to enhance yield. According to Atwater, “People are so sensitive to what they’re showing at quarter’s end, with the yield premium [on securities lending] getting attractive, they’re willing to make the disclosure because they’re getting paid.”