Silicon Valley Bank wasn't the only U.S. company with a lot of cash to put to work, but corporate America's bulging balance sheets aren't likely to cause any of the same kinds of problems. The cash balances of big companies will, though, be in focus again as another earnings season begins.
U.S. companies are sitting on at least $2 trillion of cash, with a quarter of it concentrated in a few top technology companies, according to Moody's Investor Service. During the depths of the pandemic, a new phenomenon was witnessed in the equities market with investors rushing into names including Apple as if it offered the stock market equivalent of a bond. In the just completed first quarter, even amid all of the volatility that accompanied the banking crisis, Apple posted a 27% return.
It's not just a tech phenomenon. Other big holders of cash are carmakers like Ford and Tesla, and health-care companies like Pfizer.
For most major companies, the first major point to make it that cash management, for good or ill, has only limited effect on their operations. Taking the bank example, depositors may run if they think an institution is in trouble, as we just saw. Few will likely decline to buy an iPhone, for example, if Apple one day loses money on bonds. There's no such thing in industrial companies as a run on the bank: If the value of bonds that Tesla owns drops, for example, it won't be forced to repay customers who have owned a Model X for years, the way banks have had to pay off depositors who want out.
The top five cash holders in Moody's 2022 survey were Apple, Meta, Amazon, Microsoft and Alphabet.
"You add up the top 10 to 12 tech players, and it's a trillion dollars in cash," said Wedbush analyst Dan Ives. "But it's so well managed that you have 2% to 3%, max, in unrealized [losses in value]."
Where to look for limited loss info on income statements
Companies don't disclose many details about their uses of cash, but what they do disclose is fairly easy to find in Securities and Exchange Commission filings. Look for the line on the income statement that discloses "other income," usually between operating profit or loss and disclosure of the company's tax bill. Usually, there is a footnote explaining the highlights. But readers seeking a detailed explanation of the portfolio at these companies may leave disappointed.
"The disclosure is really poor for the auto companies regarding the nature of their cash holdings, so there's not much to go on," CFRA Research autos analyst Garrett Nelson said. "Companies often keep money in money market funds or similar highly liquid accounts which should generate more interest income as rates rise, but the amount probably won't be a material contributor to overall earnings for most companies, even those with large cash balances like Tesla or Ford."
Given the yields on offer, everyone, not just big companies, has been piling into money market funds based on recent data on outflows from bank deposits.
The 2022 results among big companies for managing their cash and investments were all over the mark, for a variety of reasons. Take Amazon's $16.8 billion 2022 non-cash loss, not related to any bad bond bets but a big investment stake in electric truck maker Rivian.
Ford had a tough 2022 on the "other income" line of its income statement, losing more than $5 billion, according to the company's annual 10-K filing. Ford, which did not respond to a request for comment, reported a $7.4 billion write down on its own Rivian stake.
But rising interest rates didn't seem to hurt giant chipmaker Intel, which reported that it made a profit of $1.17 billion on "interest and other" investment income. It also reported a $427 million gain on equity investments — reflecting the successful spinoff of Mobileye. Intel reported $28.3 billion of cash and investments as of Dec. 31.
For some corporations, the big recent moves have been shoring up where the cash on deposit is being held. The latest CNBC CFO Council quarterly survey showed that even as the majority of companies didn't face a threat from the regional banking crisis, 23% of CFOs surveyed said they had moved some money out of regional banks and into large multinationals in the last month. Still, most (73%) said they are "not at all concerned" about the safety of company deposits.
Big Tech cash and investments
At Amazon, which declined comment but referred CNBC to the correct portion of its 10-K filing, the largest part of its $70 billion cash and securities pile is tied up in money market funds that pay an average interest rate of 4.2%. Nearly $28 billion was sitting at year-end in one of the simplest investment tools on the market, with another $17.5 million invested in corporate bonds. Amazon's filing shows it owned $7.2 billion in stocks and warrants of other companies, with Rivian securities remaining the largest chunk of Amazon's $5 billion invested in other public companies.
A few miles away from Amazon in suburban Seattle, Microsoft said its "other income" line was basically break even during the second half of 2022 – the first half of the company's fiscal year. The world's largest software company said it lost $6 million in "other income" during the period. The company said its $700 million in interest income nearly matched its $499 million in interest paid and its $184 million in net investment losses, mostly from writing down the value of derivatives. The company had $99.5 billion in cash at Dec. 31.
Apple, long the king of cash-rich U.S. companies, lost $393 million in other income during the December quarter, the first of its fiscal year. The company didn't recognize investment losses on its $165 billion pile of cash and marketable securities, but said it paid $1 billion in interest and collected $868 million.
Accounting rules require that bond holdings be written down to market value if the company that owns the bonds plans to sell them, according to accounting giant Deloitte. If a company like Amazon or Apple wants to keep bonds it owns, it only needs to write them down to current value if it is likely to be forced to sell the bond before it matures — as was the case for SVB — or if the issuer is likely to fail to repay the bond.
Apple is actually sitting on nearly $13 billion in unrealized losses, mostly on corporate bonds and mortgage securities, according to its most recent filing. But as long as it plans to hold the bonds to maturity, and the bond issuers are solvent enough to repay the debt, Apple and other holders don't need to charge those losses against their reported earnings, said CFRA Research analyst Angelo Zino.
"I don't want to say it's not a big deal," Zino said. "But this is a company that generates $100 billion a year in free cash flow."
