U.S. corporates are sitting on record levels of cash, and the latest data suggests firms are accelerating their stockpiling.
The Association for Financial Professionals’ October 2018 Corporate Cash Indicators report found that U.S. corporates accelerated their cash collection in the third quarter compared to the previous quarter, the AFP said in an announcement on Monday (Oct. 29).
The report, underwritten by BMO, surveyed corporate financial and treasury professionals to assess trends in how they are reserving corporate cash. Previous analysis suggested these professionals had planned to reserve cash at a slower pace than what the data showed actually happened, while the latest report also signals that financial executives have no plans to slow down in the coming quarter.
“Interest rates are rising, and the Federal Reserve has made it clear they will continue to rise for some time,” said AFP President and CEO Jim Kaitz in a statement. “Not surprisingly, organizations are responding by holding more cash in anticipation of higher borrowing costs that come with higher rates. This is the kind of steady, strategic course of action we have come to expect from treasury and finance executives.”
A look at specific data points from the report finds that more than one-third of survey respondents said their cash and short-term investment balances were larger at the end of Q3 than they were at the end of Q2. Only 29 percent said they reduced their cash holdings during the third quarter.
More than one-third also said their cash and short-term investment balances were higher at the end of the quarter than they were at the same point a year ago. While one-fifth of professionals said they plan to reduce their cash and short-term investment balances in the coming quarter, even more (27 percent) said those balances will continue to increase.
In another statement, BMO Head of U.S. Commercial Treasury and Payment Solutions Kevin Kane said the data shows there is “an opportunity for organizations to reevaluate their near-term cash position as well as the optimal level of liquidity reserves.”