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A New Era for Corporate Cash Investment? The annual FIS Corporate Cash Investment report explores corporate attitudes to cash investment, investment policies and transaction execution in an environment of market volatility and regulatory change. This article outlines key findings and suggests action points for treasurers.

A New Era for Corporate Cash Investment?
A New Era for Corporate Cash Investment? 
by Tom Loven, Senior Manager, Global Trading, FIS

Now in its sixth year, FIS’ Corporate Cash Investment report explores corporate attitudes to cash investment, investment policies and transaction execution in an environment of market volatility and regulatory change. By drawing on a wealth of data, the report is unique in presenting both a snapshot of today’s challenges and opportunities, and an analysis of longer-term trends. This article outlines some of the key findings from the report, and suggests some action points for treasurers as they face both familiar and emerging challenges in the year ahead.

The year 2016 was a ‘watershed’ year for many corporate treasurers with surplus cash. Regulations such as Basel III are impacting their banks’ willingness and ability to accept short-term deposits, newly introduced reforms in the US are having a significant effect on prime money market funds (MMF), while the low, and in the Eurozone, negative interest rate environment is also impacting corporate investment strategies.

What’s happening to corporate cash balances?

Corporate cash balances continued to rise in 2016, a consistent trend since 2012, but the rate of growth is slowing.

Furthermore, the proportion of companies whose cash levels had not changed increased for the first time since 2012, from 31% in 2015 to 44% in 2016. Even so, nearly half of corporations surveyed have increased their cash balances over the past 12 months. The reasons why companies hold this cash are also shifting. In 2015, over a third of companies held cash to finance capital investment and M&A, but this dropped to 19% in 2016. Conversely, while 23% of companies held cash to finance working capital in 2015, this rose to 43% in 2016.

2016 also marked an important change in treasurers’ primary cash investment challenges compared with previous years. Sixty per cent noted that the low or negative interest rate environment was their number-one concern. This contrasts with visibility, regulatory, asset availability and trapped cash that have topped treasurers’ list of investment challenges over the previous five years.

What are treasurers’ preferred investment instruments? And what changes are taking place?

The importance of deposits

Deposits remain treasurers’ investment instrument of choice with 82% of participants noting that they used deposits, investing an average of 48% of cash. Treasurers first look at the available limit headroom with authorised dealing banks when depositing cash, but beyond this, yield is more important to treasurers than whether a bank is a relationship bank. This would appear to contrast with many banks’ and treasurers’ emphasis on ‘share of wallet’, and reflects the growing importance of yield as an investment objective. 

The importance of yield is also reflected in the growing use of independent dealing portals to transact deposits. Treasurers are increasingly recognising the value of price discovery and competitive quotes in an environment where short-term deposits (i.e., less than 30 days) are becoming less readily available and new deposit products are starting to emerge. In addition, they are keen to integrate transactions directly into the treasury management system (TMS) for better efficiency and control.

The changing future of deposits

Basel III is already impacting banks’ ability and willingness to accept some types of cash onto their balance sheet, particularly in the US and Europe, where banks are implementing capital and liquidity requirements more quickly than in other regions; ultimately, however, all banks will be obliged to do so. Specifically, under the liquidity coverage ratio (LCR), different sources of liquidity no longer have the same value to a bank. A deposit received from a non-financial corporation is more valuable to a bank than a deposit received from a financial institution, which is considered to have a higher run-off rate. Furthermore, as banks need to demonstrate their ability to weather a period of 30 days of stress, deposits need to have a tenor of 31 days or above to be attractive to the bank, unless deposits can be shown to be linked to operating activities.



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