Washington
– July 10, 2012 – According to data released today by the Association for
Financial Professionals (AFP) and underwritten by RBS and RBS Citizens, short-term
corporate cash is increasingly moving towards banks, with bank deposits now
accounting for 51 percent of short-term corporate investment balances. Findings
from the 2012 AFP Liquidity Survey
show the highest level in the survey’s seven-year lifespan, nine percentage
points above last year’s findings. As
recently as 2006, the average allocation was 23 percent.
This
significant jump reflects elevated corporate investment in ultra-safe vehicles
since 2007, with company investment policies reducing the types of permitted
short-term investments. The survey showed that 74 percent of corporate cash
balances are now held in one of three traditional investment vehicles: bank
deposits, money market funds and U.S. Treasury securities.
“Today,
companies are clearly seeking safety and soundness,” said Jim Gifas, Head of
Treasury Solutions, RBS Citizens. “Across the board, we see that the primary
focus is on preservation of capital, and treasurers and CFOs are eager to see
how this is being managed on a global scale.”
“Many
of the themes emerging from the survey re-affirm what we are hearing from our
clients every day," said Julian Oldale, Head of International Cash
Management, North America at RBS. “Companies are increasingly seeking market
insights and guidance on how to navigate today's challenging environment. We
sponsored this survey to help provide timely and relevant information that
treasury decision-makers need to do their jobs. ”
Companies are continuing to
increase cash balances, with 41 percent of survey respondents reporting that
their organizations held greater cash balances during the first quarter of 2012
than in the first quarter of 2011. Fewer
than three in ten indicate their organizations reduced cash and short-term
investment balances during that same period.
Rather
than exclusively building cash balances as a buffer, some companies have
deployed cash to make opportunistic investments in operations or acquisitions,
respondents said. Of companies that increased cash balances, 61 percent had
more cash because they generated higher operating cash flows while 22 percent
increased cash by accessing debt markets. Among respondents who saw lower cash
balances, 30 percent said it was because their organization increased capital
expenditures while 25 percent had taken the opportunity to repay or retire
debt.
The
high concentration in bank deposits may escalate if reforms hinted at by the
U.S. Securities and Exchange Commission become effective and lead corporate
treasurers to cease investing in money market funds (MMFs) or trim their MMF
holdings. The reforms that have been
discussed include a mandated floating net asset value, redemption holdback
provisions, or a requirement for funds to create capital reserves. The AFP survey indicates that if any of these
reforms were to become effective, a minimum of 66 percent of organizations
would stop investing in money funds or trim holdings, creating outflows in need
of safe investment.
“In
these uncertain times, it is clear that protecting principal is the main concern
of corporate treasurers,” said Jim Kaitz, AFP’s president and CEO. “This is
creating a virtuous/vicious cycle of increasing cash balances and also flows to
banks.”
Looking
ahead, respondents anticipate elevated cash levels to continue. Forty-six percent expect balances to remain
about the same over the next year while 32 percent of respondents expect even
larger cash balances. Only 22 percent of
respondents expect balances to contract over the next year. Among respondents who anticipate their
organizations will increase cash holdings, 78 percent believe this will be the
direct result of increased operating cash flow. Forty-six percent of financial
professionals who believe their organizations will reduce cash balances say the
holdings will decrease because of greater capital spending.
About the Survey
AFP conducted the survey, underwritten by RBS and RBS Citizens, in May 2012,
generating 391 responses. The survey respondents were senior finance and
treasury executives from a broad range of companies—typically U.S.-based
multinationals with a median of $2 billion in revenue. The typical AFP member works at an
organization with complex treasury operational needs that can be met only by
large regional banks and global banks.
Download key findings from
the AFP
2012 Liquidity Survey on www.afponline.org/liquidity
About AFP®
(afponline.org)
The Association for Financial Professionals (AFP) is a professional society
headquartered outside Washington, DC, that provides members with news, economic
research and data on the evolving world of treasury and finance, certification
programs, networking events, financial analytical tools, training, and public
policy representation to legislators and regulators. AFP's global reach extends
to over 150,000 treasury and financial professionals worldwide, including AFP
of Canada; London-based gtnews, an on-line resource for the treasury and
finance community; and bobsguide, a financial IT solutions network.
About the Royal Bank of Scotland Group (RBS)
(rbs.com)
The RBS Group is
a large international banking and financial services company. Headquartered in
Edinburgh, the Group operates in the United Kingdom, Europe, the Middle East,
the Americas and Asia, serving over 30 million customers worldwide. The Group
provides a wide range of products and services to personal, commercial and
large corporate and institutional customers through its two principal
subsidiaries, The Royal Bank of Scotland and NatWest, as well as through a number
of other well-known brands including Citizens, Charter One, Ulster Bank,
Coutts, Direct Line.
About RBS Citizens (citizensbank.com)
RBS Citizens, N.A., is a subsidiary of RBS
Citizens Financial Group, Inc., a $130-billion commercial bank holding company.
RBS Citizens Financial Group is headquartered in Providence, R.I., and through
its subsidiaries has more than 1,460 branches, approximately 3,800 ATMs and
approximately 19,200 colleagues. Its two bank subsidiaries, RBS Citizens, N.A.,
and Citizens Bank of Pennsylvania, operate a 12-state branch network under the
Citizens Bank brand in Connecticut, Delaware, Massachusetts, New Hampshire, New
Jersey, New York, Pennsylvania, Rhode Island and Vermont, and the Charter One
brand in Illinois, Michigan and Ohio.