From the September 2007 issue of Treasury & Risk magazine

Lots of Cash, Little Faith

Finance executives are jittery. That's no surprise considering the subprime meltdown.

Finance executives are jittery. That's no surprise considering the subprime meltdown. But now, there is evidence that even before the scope of the mortgage mess was evident, at least some prescient finance professionals were holding on to cash--despite a hot equities market and good profits.

An Association for Financial Professionals (AFP) liquidity survey covering the six months between November 2006 and May 2007 found that 36% of the 449 responding companies increased their U.S. cash and short-term equivalent balances during that period; 18% reported lower balances and 46% stayed the same. One sentiment that might change is the expectations moving forward: In May, only 27% expected their organizations to boost short-term cash balances, while about 24% predicted they would cut reserves. Half expected no change. "This survey shows that the current investment climate and economic conditions have not yet presented a compelling argument for companies to invest rather than preserve cash," says Jeff Glenzer, executive director of AFP's Corporate Treasurers Council. There are a variety of reasons companies hold on to cash, says Glenzer: as a precautionary cushion against unexpected events, protection against a credit crunch or the ability to fund strategic investment opportunities as they occur.

Because they have been holding more cash assets, Dan Carmody, president of TreaSolutions Inc., thinks that many companies have made projects in cash management modernization a priority. "[They] are placing a tremendous amount of emphasis on cash management automation, efficiency and security," he says.

In the Citigroup-sponsored AFP survey, finance execs want more sophisticated technology to help with accurate cash forecasts (67%); getting real-time visibility of cash accounts (42%); consolidating cash held in multiple entities (42%) and late-day transactions (39%).

The fact that so many companies maintained high balances shows "prudent cash management," according to Carmody.


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