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Liquidity of corporate U.S. at record level

By Richard Waters,
 A woman inside an Apple store in Hong Kong on June 27. Cash reserves of Apple and other tech firms at record levels.
A woman inside an Apple store in Hong Kong on June 27. Cash reserves of Apple and other tech firms at record levels.
  • The swelling have raised the overall liquidity of corporate America to record levels
  • Cash reserves of Apple and a handful of other technology companies pushing trend
  • Moody's: Around $6 out of every $10 of corporate liquidity has come from tech companies

(Financial Times) -- The swelling cash reserves of Apple and a handful of other technology companies have raised the overall liquidity of corporate America to record levels, data revealed on Monday.

Around $6 out of every $10 added to the corporate sector's cash mountain over the past three years has come from tech companies, Moody's Investor Service, the US rating agency, said. The overall pile reached a record $1.45tn at the end of last year, up 10 per cent from the year before.

Apple alone is likely to be sitting on $170bn of cash and liquid investments by the end of this year, lifting its share of the overall reserves to an expected 11 per cent from 9.5 per cent at the end of last year, according to Moody's.

A growing number of tech companies have responded to their swelling financial reserves by starting or increasing dividend payments, though not fast enough to stem the increase in cash holdings or head off unhappy investors.

Apple, which announced its first dividend a year ago this week, is expected to boost its dividend in the coming weeks in response to growing pressure from Wall Street and a call from dissident shareholder, Greenlight Capital, for it to issue a new class of preferred stock to reward shareholders.

Dell's cash has also drawn the attention of activists, with Carl Icahn joining a campaign for the company to abandon its proposed buyout and use its cash instead to pay a large dividend and support larger borrowings.

The heightened activism is one of the few areas of concern for bond market investors, said Richard Lane, an analyst at Moody's, since it could leave companies with weaker balance sheets.

Moody's figures are based on gross cash and liquid investments held by companies and do not reflect the increasing debt levels that have left corporate America with rising financial leverage. However, the agency said many companies had taken advantage of low bond yields to extend the maturity of their borrowings, and that liquid resources have grown to outweigh all debt repayments due in the next five years.

Tax avoidance arrangements that have enabled rich tech companies to channel revenues through low-tax countries have contributed to the growing cash hoard. Profits earned overseas on which little or no tax has been paid face a levy of up to 35 per cent when returned to the US, encouraging companies to leave them in bank accounts off-shore.

As a result, cash held overseas jumped by 20 per cent last year to reach $840bn, according to Moody's. US tech leaders like John Chambers, chief executive of Cisco Systems, have argued forcefully for a tax holiday to bringing their cash back to the US, though most tax experts say such relief has become increasingly unlikely as the overall fiscal situation has worsened.

The increasing concentration of corporate wealth has raised the stakes for companies hoping to join the elite club of the most cash-rich. While it only took $2.9bn to make the list of the 50 most liquid companies in 2006, the entry level has now risen to $4.9bn.

© The Financial Times Limited 2014

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