The fragility of liquidity makes them hold off on returning capital to shareholders
US corporates plan to sock away nearly a quarter of their cash in case the eurozone crisis or other events shut the capital markets. According to Deloitte’s latest CFO Signals survey of the largest US companies, on average, these enterprises plan to keep 25 percent on hand for a rainy day. The aversion to parting with their cash piles is compounded by worries over the cost of acquisition financing, which for smaller companies in particular, can be prohibitive.
The report’s authors write, “As for their growing cash coffers, CFOs may feel pressured to return cash to shareholders in the forms of dividends and buybacks, but when asked about their cash deployment plans, they remain committed to allocating almost a quarter to liquidity.” This is despite the fact that, as Deloitte notes in its report, “many large companies have [already] recapitalized at very low interest rates and that also lowered their cost of capital.”
US finance executives aren’t alone. Treasurers of European corporates are likewise battening down the hatches, according to comments at the NeuGroup’s European Treasurers’ Peer Group. (See Peer Groups: Proximity to Crisis Makes Euro Treasurers Extra Cautious)
However, Deloitte says that worries about market liquidity are not affecting corporate appetite for “transformational deals”. The Deloitte survey notes that one in five CFOs are looking for such transactions, while more than half are looking for smaller deals. Those pursuing opportunities overseas remain most interested in China, the survey notes.