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Corporate America is sitting on a colossal $2 trillion in cash — $1.4 trillion in the S&P’s top 20 alone — but that does little for the public.
Depending on whom you talk to, it’s either a huge rainy-day fund if the economy heads for a double dip, or it’s top executives feathering their nest in order to grab huge year-end bonuses.
“It’s enormous by historical standards,” Howard Silverblatt, senior index analyst at S&P told The Post, describing the staggering scale of the unspent corporate bundle. “The $963 billion is more than the recent government incentive and stimulus spending.”
Excluding customer-deposit-rich financial institutions — which need to have assets to offset deposits — an astounding $963 billion is held in cash and cash-equivalents (money market accounts and T-bills, for example) alone at the S&P 500 industrial companies.
Either way, with unemployment at 9.1 percent, the top corporations are not using it to hire workers or expand benefits.
American corporations are in a sweet spot, according to some. They have a motivated work force , and with muted demand, no need to expand and hire more workers.
The sums at stake have triggered alarms.
“Companies should be using the cash to either invest in new products to allow them to grow, or to make acquisitions if they are not good at research and development,” said Peter Cohan, a management consultant and venture capitalist. “Alternatively, they should use the cash to pay back shareholders in dividends.”
That big, liquid pile is accumulating at a record pace: ten consecutive quarters of growing cash on the corporate sidelines, according to Standard & Poor’s. That’s despite America’s jobs crisis and a faltering economy.
What a waste, experts say. Freed up to finance acquisitions, product innovation and hiring — and to pay nice dividends to shareholders — that nearly trillion-dollar sum would overshadow the best Washington taxpayer-funded economic stimulus program.
Among the top 20 industrials as measured by market cap in the S&P — companies that include Exxon Mobil, Apple and Walmart — there’s about $400 billion in cash on hand, according to S&P.
There are two conflicting pictures. Silverblatt said the overall strong performance of S&P companies is disconnected from the reality of the US economy.
“Companies have been able to come through this very nicely with good cash, good earnings, low interest rates and by managing their debt,” Silverblatt said. “On the other hand, companies have not hired, and are not planning expansion.”
Cohan thinks some companies, seeking to boost their earnings per share, or EPS, are tapping their idle money for stock buybacks. That’s so top management can engineer bigger personal bonuses. “The growth of EPS are generally key to their bonuses,” Cohan said.
There’s no shortage of ideas on why corporate America won’t spend on expansion. Some border on conspiracy theories.
“Here is the suspicion,” said Kenneth Brown, managing director at private-equity firm Lionshare Holdings in Washington, DC. “We are headed for a double dip.
“If you are headed for a double dip,” Brown explained, “you have one guy who wants to make money as a bear — the hedge fund guy — and then you have the other who likes to make the money as a bull. The real suspicion, therefore, is that in six months there’s going to be a whole lot of cheap labor, cheap companies, and cheap real estate to buy, as the country heads towards a serious double dip.”
But corporate America may simply be playing it safe. Gregory Daco, a US economist at IHS Global Insight, said companies are hoarding cash as a precaution against restricted lending to them.
Besides, US consumers are stretched financially. Rosenblatt says there’s no incentive for many companies to expand. “Why go out and make 110 widgets when I can only sell 100?” he asked.
Huge balances
US companies are holding $2T in cash on their balance sheets.
Here are the top 20 ranked cash positions for S&P 500 firms.
Top 20 Firms with cash
1. Citigroup $526B
2. JPMorgan Chase $414B
3. Wells Fargo $112B
4. General Electric $82B
5. Microsoft $53B
6. Google $39B
7. Oracle $29B
8. Apple $28B
9. Johnson & Johnson $27B
10. Pfizer $24B
11. Chevron $18B
12. Coca-Cola $14B
13. Intel $12B
14. IBM $12B
15. Exxon Mobil $10B
16. Walmart $9B
17. Schlumberger $5B
18. AT&T $4B
19. Procter & Gamble $3B
20. Philip Morris $2B
Source: S&P
TOTAL: $1.4T