Daily News: June 21, 2013

Survey: Companies Exhibiting ‘Growth Behavior’

According to a new report by RBS Citizens and the Association for Financial Professionals (AFP), companies are exhibiting a greater need for liquidity in order to support corporate investment and growth. The 2013 AFP Liquidity Survey, sponsored by RBS Citizens, polled 885 corporate financial professionals across the country — a record number of respondents — about their liquidity concerns and short-term investment policies.

“Even though companies are still prioritizing safety of capital in their short-term investment decisions, more and more signs are pointing to a cautious optimism among corporate treasurers,” said James Gifas, head of Treasury Solutions for RBS Citizens.

Key findings from the survey include:

• Demand for liquidity on the rise. When weighing the mix of investment safety, liquidity, and yield, the number of respondents rating safety as their top priority dropped to 68% in 2013, down from 77% in 2012. Liquidity as a priority, on the other hand, saw a corresponding rise to 29% in 2013, up from 21% in 2012. “This reflects at least in part a greater desire to have cash on hand,” said Gifas.

• Signs of corporate “growth behavior.” The 40% of companies who increased their cash balances over the last year cited a higher operating cash flow as the primary reason for this increase. For companies with reduced cash balances, the top reasons were increased capital expenditures, acquisition of a new company, or the launch of a new product. “These behaviors reflect some general movement away from the cash-hoarding we’ve seen in recent years,” he observed.

• Greater confidence in banking partnerships. “Last year, many felt that the ending of unlimited FDIC coverage would drive down cash held in corporate bank deposits, but, in fact, this drop barely happened,” said Gifas. “With widespread attention given to rigorous risk management policies banks are implementing, the presence of FDIC insurance may not hold as much weight for corporations as it did just a few years ago.”

• More discipline in short-term investment policies. Companies are more restrictive in capping qualified investments than last year, with municipal securities and Eurodollar deposits being two of the vehicles with the most limits this year compared to last. “Money market funds also remain a big unknown for companies, with reform looming, and these are also more restricted this year,” Gifas said.