Several topics came up in International Treasurer’s editorial meeting this week, including what treasurers expect when it comes to the possible end of Transaction Account Guarantee (TAG) program. Also, companies have been thinking about the so-called “fiscal cliff” for a while but now some firms are making preparations in one form or another. Another topic that treasurers have been speaking about is securities lending and the hope for new portals that allow corporates to do this.
TAG. The Fed’s TAG program has provided unlimited Federal Deposit Insurance Corp. (FDIC) insurance on the bank accounts that companies and city governments use for payroll and other operating expenses. But the program is set to end Dec. 31 unless it’s extended by Congress. Treasurers have grown fond of the program and are not happy to see it go. Although many treasurers in The NeuGroup universe expect the program to end, it’s not a lock that it will as the program has lots of supporters. Those supporters include the American Bankers Association, Independent Community Bankers of America, the White House and Congressional Democrats. One organization opposed to the program is the Investment Company Institute, which naturally (bank accounts compete with money market funds after all) wants it spiked.
So the prospects for the passage of an extension post-election, what with a lame-duck session, are fairly mixed.
Fiscal Cliff Prep. As per the Financial Times, General Electric has said it had refinanced $5bn of bonds that mature early in 2013 “to avoid any market turbulence ahead of a possible looming ‘fiscal cliff’ of tax rises and spending cuts.” Will other companies follow suit? And with companies now sitting on an estimated $1.5tn in cash, some are looking at tax efficient ways to giving cash back to shareholders. If the fiscal cliff comes to fruition, dividend tax rates would end up exceeding capital gains tax rates for investors, so companies may embark on more share buybacks as they offer more tax-efficiency for investors. Although dividends might be less popular, it is unlikely that companies will cut dividends to improve tax efficiency, experts say.
Securities Lending. A recent NeuGroup Treasurers’ Group of Thirty meeting discussed the topic of companies lending excess cash back to the market overnight via securities lending operations. Given the reportedly large piles of cash companies are sitting on and the lack of quality and safe places to put that cash, securities lending offers companies the opportunity to put that cash to work and get some return. Currently companies use a bank portal to facilitate these transactions but there soon will be new non-bank portals that will help companies trade in the markets, according several T30 members.