Cash & Liquidity ManagementFinding value for excess corporate cash

Finding value for excess corporate cash

With interest rates at historic lows and inflation on the rise, cash-rich corporate treasurers face a dilemma about what to do about their liquidity

Corporates are awash with cash, much of which was stacked up during the pandemic as liquidity became paramount as companies shifted to survival mode.

“Corporates and households around the world are sitting on very large cash piles compared to before the pandemic,” said Benjamin Jones, director of macro research at Invesco (EMEA) in a blog post on Macrobond, citing the surge in money market fund (MMF) assets under management as corporate treasurers took precautionary measures.


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Other corporate treasurers have simply stockpiled loose funds.

“Most of our clients have been holding quite a lot of excess cash on the balance sheet,” says Jeff Byrne, managing director of global transaction services at Westpac Institutional Bank in an interview with

The result, according to a recent report by McKinsey, is that “recently liquidity metrics have received as much focus as more widely publicised measures like operating margins and EBIT”.

And some treasurers have found cash they didn’t realise they had, with unsuspected funds often sitting in foreign jurisdictions, providing collateral that’s no longer required, or having been used as credit support in the absence of better alternatives.

With inflation on the move though, the dilemma is what to do with excess liquidity, wherever it may be.

“With rates so low there is little to be gained from holding cash,” says Invesco’s Jones. “In fact, with inflation soaring the opportunity cost of holding cash is huge.” But with the usual suspects such as MMFs, bank deposits and commercial paper offering derisory returns, where to put it?

Rising inflation is skewing treasurers’ decisions. As World Bank chief economist Ayhan Kose said in January, “inflation is a global phenomenon”. The bank’s Global Economics Prospects report notes that central banks in many countries are being forced to respond by raising policy rates that in turn boost commercial rates as well as the cost of borrowing.

In this environment excess cash should be put to good use or given back, suggests Jones. “Corporates will engage in a mix of returning cash to shareholders and capital investment,” he said, citing a decade of underinvestment. McKinsey agrees. In the absence of worthwhile short-term alternatives, the consultancy sees merit in pumping the cash into high-performing subsidiaries or distributing it to shareholders.

Others expect excess corporate cash to be deployed to pursue inorganic growth opportunities. According to a recent report on the future of M&A, Deloitte said it expects deal volumes to rise in 2022.

In the US, for instance, M&A activity recovered to pre-pandemic levels by the summer of 2020, and steadily accelerated throughout 2021 as corporate treasury deployed cash, with this trend set to continue this year.

“The trends we are seeing in this very active market indicate that we are just at the start of the next M&A run,” said Trevear Thomas, US leader for mergers, acquisitions, and restructuring services at Deloitte.

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