Companies sitting on a mountain of cash - US$7 trillion

  • Banking
  • Monday, 25 Aug 2014


THE global financial crisis of 2008 has made companies more cautious, hoarding their cash reserves that earn low returns sitting on balance sheets.

Collectively, they have amassed a global war chest of US$7 trillion.

The bulk of the cash is held by 5,100 of the world’s biggest companies, which had combined reserves – cash and short-term debt – of US$5.7 trillion as at the end of 2013, said the Telegraph, quoting Thomson Reuters Datastream.

Corporate America dominates the pack with about US$2 trillion at its disposal.

Apple’s cash mountain of US$140bil means it has more unspent capital than any other American company, followed by Microsoft with US$83bil, and Google, which has built up US$59bil of reserves, said the Telegraph.

The FTSE 100 has US$85.5bil of untapped cash reserves. Drugmaker AstraZeneca leads the field with US$8bil, closely followed by miners Anglo American with US$7.7bil and BHP Billiton at US$5.6bil, said the Telegraph.

A record number of investors are calling for companies to invest more in capital spending, said the Telegraph, quoting a well-respected poll of fund managers by Bank of America Merrill Lynch.

The number of investors wanting companies to return surplus cash to them, via dividends and buybacks, is at the lowest level in five years.

This is good news as companies are said to be increasing capacity and hence, capital expenditure.

As they eventually loosen their purse strings, they will help further aid world economic recovery. To boost falling returns on assets, Taiwan is set to ease regulations for its financial sector to make acquisitions in Asia.

This regulatory easing is likely to be speedy, probably by end of next month, said Reuters.

Of the eight financial institutions that held talks with the Financial Supervisory Commission were Mega Financial and CTBC Financial, Cathay Financial and Fubon Financial.

Expansion into Asia’s financial sector should be a matter of strategy rather than just reacting to falling revenues.

When properly planned, these acquisitions can be a force to be reckoned with in terms of strategic tie-up and enhancement, pricing and competitive edge. A lot of other banks in the region are also eyeing acquisitions; so it is a matter of timing and being in the right place at the right time for these Taiwanese institutions.

Meanwhile, India is working to tighten risk management in its banks, following an investigation into state-controlled Syndicate Bank.

The Central Bureau of Investigation has arrested the chairman of Syndicate Bank and is questioning the head of Bhushan Steel, which owes US$6bil, said Reuters.

While both heads have denied any wrongdoing, the investigation into Syndicate Bank has raised broader concerns about weak oversight, corruption and politically directed lending at India’s dominant state banks, which are weighed down by bad loans, said Reuters.

India’s state banks need US$40bil in fresh capital by 2018 to meet international capital adequacy standards, said Reuters, quoting Finance Minister Arun Jaitley. In view of all these concerns and the need for fresh capital, it appears that the state banks need to undergo a major spruce-up.

During the process of raising fresh capital, investors would probably be looking into the track record of these banks and see how some of these concerns have been addressed.

Columnist Yap Leng Kuen looks forward to the boost from the spending spree by top companies.

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