Guess What Cash-Flush Companies Are Doing With Their Money?

US companies are still sitting on a trillion dollar plus cash mountain, but this hasn’t changed the fact, some say, that they continue to squirrel away hundreds of billions of dollars in perhaps the least sexy of all places: the bank.


“You’re just not getting paid to do anything right now," says Brian Kalish, head of the finance practice at the Association for Financial Professionals. "You’re in this ultra low-yield environment...leaving the money in the bank isn’t costing you anything.”

If holding cash in the bank seems a bit…pedestrian, that’s because it kind of is. Many companies could be putting their short-term portfolio to work through a range of strategies, including agency securities, munis and asset-backed securities. But many are even passing on the king of low-risk investments—Treasury bills—as rock-bottom rates make tying up cash in short stints less attractive than the ease of having cash at hand.

Kalish says nagging economic fears, near-zero clarity on tax cuts and just plain prudence are some reasons why companies are content for now to watch their cash earn next to nothing in the bank. And with rates averaging near zero on bank deposits, money in the bank is truly returning CFO's little more than a sounder night's sleep.

“We are still in that conservative mode from two years still trumps," Kalish says. “Here we are in late November—nobody wants to be a hero.”

This isn't to say companies aren't spending—they are, but increasingly with new dollars snapped up by a "surge" in debt issuance in the third quarter, according to research from Deutsche Bank.

Per the firm's research, cash levels at S&P 500 companies excluding financials neared $1.1 trillion in the third quarter. Cash acquisitions in this group are up 75 percent year over year, now touching 2006 levels.

The cries of corporate cash hoarding, says Deutsche Bank's chief U.S. equity strategist Binky Chadha, may be overstated, adding that he believes companies are "clearly" spending and higher levels of cash accumulation is "pretty typical cyclical behavior."

Besides, some believe a little liquidity might not be such a bad thing nowadays.

"Levels of cash should always set records," says Peter Crane, founder of money-fund research firm Crane Data. "After what we’ve seen in the last few years, you’d be crazy not to hold a higher liquidity buffer."


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