US groups hoard cash as uncertainty grows

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The Financial Times  /  July 24, 2016

American companies are increasing their holdings of cash in response to a rise in economic and geopolitical uncertainty, according to a survey of corporate treasurers.

The data, which could be a harbinger of a pullback in business investment, come alongside cautious comments from US companies on the outlook for the third quarter. With the reporting season in full swing, Wall Street analysts no longer expect a rise in earnings.

The latest survey by the Association for Financial Professionals shows companies are taking their most cautious approach to cash management since mid-2011, when markets were roiled by the eurozone debt crisis and a showdown over the US debt ceiling.

“Any likelihood of organisations deploying their cash has been curtailed by the outcome of the Brexit referendum, a tepid domestic economy and continued sluggishness in the global economy,” said Craig Martin, Corporate Treasurers Council executive director.

The survey, to be published on Monday, shows companies accumulated cash balances at a far quicker pace in the second quarter than in the first, and expect to do so at a still faster pace in the current quarter. An index of expectations for the current quarter jumped to plus-16 from plus-7 three months ago. The number represents the difference between the percentage of treasurers expecting to increase cash holdings and those who are expecting to decrease them.

Martin said business confidence had been subdued through the recovery from the financial crisis. Capital investment and hiring by US multinationals had been held back further this year by swings in currency markets.

“Even companies with the most sophisticated currency hedges are finding this one more complicating factor,” he said.

Twenty five per cent of companies in the S&P 500 have reported earnings for the second quarter and a majority have come in ahead of Wall Street forecasts, but cautious outlook statements have tempered investor enthusiasm.

Three quarters of those that have issued earnings forecasts for the current quarter have guided lower. That proportion is typical, but the consequence this quarter is that analysts are now expecting earnings to decline in the three months to the end of September, when last week they were expecting a 0.3 per cent increase.

Industrial companies, in particular, have been scaling back their expectations, say analysts.

“On March 31, the estimated earnings growth rate for Q3 was 3.3 per cent. By June 30, the estimated growth rate had declined to 0.6 per cent, and today it stands at minus 0.1 per cent.”

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