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Just five US companies are hoarding nearly half a trillion dollars as the country's tax code and a tepid global economy deter businesses from spending their overseas cash piles.
Apple, Microsoft, Google, Pfizer and Cisco are sitting on $439bn of cash — accounting for more than a quarter of the total $1.73tn being held by US groups, according to Moody's Investor Services. The top 50 together hold almost $1.1tn, with the iPhone maker alone accounting for more than a 10th of the cash reserves.
The Moody's analysis showed 4 per cent growth in the cash on corporate balance sheets of the companies it covers, excluding the financial sector, over the past year. The growing cash piles underline the reluctance of boardrooms to repatriate money held abroad even as they tap debt markets to fund record spending on dividends, buybacks and acquisitions. Moody's estimated that 64 per cent of the cash, or about $1.1tn, was held overseas, up from $950bn or 57 per cent a year ago.
"There has been little progress toward corporate tax reform that would incentivise US companies to permanently repatriate funds held overseas," said Richard Lane of Moody's. Economists with Goldman Sachs said they saw such reform as "unlikely" to happen this year or next.
Cheap borrowing costs have kept companies from dipping into foreign cash, as executives seek to avoid a tax bill on profits earned abroad. Instead, Oracle, AT&T, AbbVie and Microsoft have completed multibillion-dollar debt issuances ahead of a recent sell-off in Treasury markets, as investors prepare for the Federal Reserve to lift rates.
That could change if borrowing costs rise. Activist shareholders continue to press companies to return cash — in the form of buybacks and dividends — on which S&P 500 constituents are set to spend $1tn this year.
Executives' desire to buy into faster growing business areas has unleashed a wave of M&A activity, with total announced deals up 26 per cent to $1.4tn since the start of 2015, according to Dealogic.
Capital spending has also climbed, up nearly 8 per cent to $937bn last year at non-financial companies rated by Moody's. However, strategists say that growth will probably reverse, as energy companies slash spending after a rout in oil prices to protect shareholder returns and financial liquidity.
Dubravko Lakos-Bujas, US equity strategist with JPMorgan, noted that the technology and healthcare sectors had the highest cash balances abroad, adding that the status quo was "likely to prevail" as the odds of a deal being reached in Washington were quite low.
"We believe US corporates continue to grow earnings at a high-single-digit rate with increasing corporate actions including higher buyback and M&A activity with or without repatriated cash," he said.