Just 50 US companies are now hoarding more than $1tn in cash, with five giant multinationals sitting on $439bn of that sum, as the country’s tax code and a tepid global economy deter companies from touching their foreign reserves, Financial Times reports.
An analysis by Moody’s Investor Services showed 4 per cent growth in the cash held on corporate balance sheets over the past year across all the companies it covers, excluding the financial sector.
The five largest hoarders — Apple, Microsoft, Google, Pfizer and Cisco — account for a quarter of the total $1.73tn, with the iPhone maker accounting for more than a tenth. The top 50 together hold almost $1.1tn.
The figures underline boardrooms’ reluctance to repatriate cash held abroad even as they tap debt markets to fund record spending on dividends and buybacks and a surge in acquisition budgets. Moody’s estimated 64 per cent of the cash, or roughly $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 say they see 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 expenditures have 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 have 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.