Impatient shareholders are calling on the world’s top firms to start
spending some of the eye-popping $2.8 trillion in cash built up since
the financial crisis, as analysts warn that their thriftiness could be
holding back global growth.
The combined war chests held by companies including Apple, Google and
Samsung — roughly equivalent to the size of France’s economy — has
swelled since the 2008 global downturn hammered stock markets and saw
nervous firms pinching their pennies as they waited out the storm.
But even as markets bounced back and business confidence recovered, the cash piles kept growing.
That has prompted a drumbeat of calls for firms to start spending
more on share buybacks or boosting dividends, building new factories, or
acquiring rival firms.
Among those targeted was Toyota, which last month announced a plan to
start buying back $3.5 billion worth of its shares after its annual
investor meeting in June.
The move by the world’s largest automaker would be the first time in
five years it has embarked on a buyback, which tends to boost a
company’s stock and signals growing confidence among management.
“Since Toyota has said it would scale down its investment over the
next three years, share buybacks are one of the practical options that a
cash-rich company can take,” said Yusuke Miura, analyst at Tokai Tokyo
Research Center in Japan.
Toyota is far from alone.
Together, Apple, Microsoft and Google have over $300 billion in cash,
while US non-financial firms held a record $1.64 trillion in all —
double the amount back in 2007, according to a report last month by
ratings agency Moody’s.
While major US firms have also increased their debt in recent years,
the cash buildup has generated criticism from investors and critics who
say some of America’s best-known firms are hoarding money overseas — and
out of the hands of the taxman.
But “Moody’s expects businesses to remain cautious over the next
year, with spending on capital investments, dividends, acquisitions and
share buybacks going up only slightly,” it said.
- Cash ‘rethink’ -
Earlier this year, US activist investor Carl Icahn said Apple was
“doing a disservice to shareholders”, despite the iPhone maker agreeing
to a plan that would return some $100 billion to investors including $60
billion in share buybacks.
The billionaire has since said he would no longer press Apple — whose
cash holdings are larger than Hungary’s economy — after a proxy
advisory firm recommended against his proposal.
“Companies have been well served during the financial crisis by being
fiscally prudent,” said a January report by consultancy Deloitte, which
pegged the liquid holdings of the world’s top 1,000 firms at about $2.8
trillion.
But it added that “this could hamper their progress in times of
recovery. Companies now need to rethink their cash strategy to create
growth opportunities”.
Mark Carney, current head of the Bank of England, was more blunt in a
2012 speech as he derided unused corporate cash as “dead money”.
“If companies can’t figure out what to do with it, then they should
give it to shareholders and they’ll figure it out,” Carney, then
governor of the Bank of Canada, was quoted as saying.
It is a feeling shared by some investors in technology giant Samsung,
which has built up over $50 billion in cash, the largest pile among
South Korean firms.
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