Corporate Cash Flowing to Business Investment: AFP Survey

Despite TAG expiration, treasurers keep giant reserves in bank deposits; Corporate allocations to MMFs decline to 16 percent of short-term holdings.

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Association for Financial Professionals

Jun 19, 2013, 08:30 ET

WASHINGTON, June 19, 2013 /PRNewswire/ -- According to data in the AFP 2013 Liquidity Survey released today by the Association for Financial Professionals (AFP) and underwritten by RBS Citizens, corporate cash reserves remain high and growing in banks, but a significant stream of cash is flowing into the types of corporate investment that augur well for American business.

Corporate treasurers and CFOs reported that their companies were more likely to have expanded cash and short-term investment holdings over the past year than to have contracted them (40 versus 22 percent), but companies that reduced cash were making clear investments for the future, often taking the opportunity to acquire or launch businesses.

Top reasons for paring reserves were acquiring a company or launching new operations (36 percent), increasing capital expenditures (32 percent); retiring debt (19 percent); or share repurchases or dividends (16 percent).

"Though CFOs and treasurers are cautious, these are significant amounts of cash being invested in American businesses," said Jim Kaitz, AFP's president and CEO. "If the trend continues to play out as we expect, business investment should continue to rise."

James Gifas, head of Treasury Solutions at RBS Citizens, concurred. "There are good signs that companies are building and investing now, and laying the groundwork for their future. We are seeing confidence levels rise among our treasury customers, and the survey results underscore this trend."

Companies continue to maintain ultra-conservative investment strategies for their short-term holdings, the survey found, with 74 percent of their short-term investment balances placed in one of three investment vehicles: banks, money market funds, or treasury securities.

Despite the expiration of unlimited FDIC insurance (Transaction Account Guarantee, or TAG) at the end of December, companies didn't pull their cash from banks. In fact, three out of five companies indicated that expiration of TAG had no effect on their investment strategies. About the same percentage of corporate cash resides in banks as did last year (50 percent, compared to 51 percent in 2012).

Uncertainty about the future of money market funds (MMFs) likely accounts for the large amounts that companies place in bank deposits as they seek safety of principal. This month, the U.S. Securities and Exchange Commission proposed that Prime MMFs shift to a floating-rate net asset value structure and might include redemption restrictions, which could affect institutional investors. Financial professionals indicated in the survey that their companies likely would further disinvest in MMFs should these proposals go into effect.

As uncertainty around MMFs lingers, corporate holdings have declined from previous years to just 16 percent of short-term investments in the 2013 survey, down from 30 percent as recently as the 2011 survey.

About the Survey

AFP conducted the survey, underwritten by RBS Citizens, in May 2013, generating 885 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 2013 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 RBS Citizens Financial Group, Inc.

RBS Citizens Financial Group, Inc. is a $126 billion commercial bank holding company. It is headquartered in Providence, R.I., and through its subsidiaries has approximately 1,400 branches, approximately 3,600 ATMs and approximately 19,000 colleagues. Its two bank subsidiaries are RBS Citizens, N.A., and Citizens Bank of Pennsylvania. They 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. RBSCFG has non-branch retail and commercial offices in more than 30 states. RBSCFG is owned by RBS (the Royal Bank of Scotland Group plc). RBSCFG's website is citizensbank.com