From the September/October 2012 issue of Treasury & Risk magazine

Silver AHA Winner in Liquidity Management

Getting the Best Return Out of Short-Term Cash: Google

Most liquidity managers who have a cash acquisition pending park the funds they need at closing and move on to other issues. That wasn’t good enough for Google, a sophisticated and aggressive investor of corporate cash. In August 2011, the company announced that it expected to close a $12.5 billion cash purchase of Motorola Mobility around May 2012. Google’s portfolio management group, which runs strategic longer-term investment of the company’s cash reserve, began shifting funds to the cash management group, which invests the liquidity pool available for business needs. The liquidity pool, which normally holds $1 billion to $1.5 billion, began to bulk up, and the cash management group started looking for ways to improve the return on this pile of cash. Placing that much cash meant expanding the number of Google counterparties, but adding European banks required careful scrutiny of their stability and credit quality. Google bypassed traditional tools, such as credit ratings and CDS spreads, and found its own.

“We drilled deeper by looking into each bank’s usage of euro/U.S. dollar cross-currency swaps and other funding mechanisms,” explains Saif Ashraf, a senior treasury analyst. “Our better understanding of bank funding requirements also allowed us to negotiate better returns.”

Some of those better returns came from leveraging the banks’ enhanced earnings credit rate (ECR), especially for dollar deposits, because Google had identified European banks with large dollar funding needs.     

The cash management group had to stay alert. The closing date for the deal was uncertain and cash came in spurts as the portfolio management group received cash from maturing securities and the capital markets team sold commercial paper opportunistically. But the effort paid off.

Google used the blended rate per currency earned on its existing liquidity investments as a benchmark. U.S. dollars placed under this program earned 23% to 25% more than the blended rate, while other currencies returned a modest 2% to 5% more. Because most of the cash placed was in dollars, the overall return was about 24% higher than the blended rate.