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Cash is still king in Europe as well as US Print E-mail
Friday, 12 March 2010

By Nicholas Lord

Evidence is mounting that companies are hoarding cash, not just in the U.S. but also now in Europe. This week Bloomberg analyzed 331 European companies that are in the Euro Stoxx 600 index, excluding financial services companies. These 331 were the companies that have reported their 2009 results and cumulatively they have a cash hoard of $542 billion.

This cash hoard shows how risk-averse companies remain across Europe. With M&A volumes down and an uncertain operating outlook, companies are not willing to put their earnings to work. It falls however to the CFOs of those companies to manage the cash and in these times of low interest rates, generating some kind of return from this cash hoard is a challenge. It is clear that in this environment the CFOs will be speaking to their bankers in the cash management department much more than in the M&A or capital markets desks.

They can also look to their colleagues in the private equity world. More Bloomberg data was released this week showing that some $503 billion is sitting in funds, unused and uninvested. Analysis of the data shows that if the money was invested at the rate that deals were done this year, it would take until 2021 to deploy all the capital.

Corporate executives and Fund GPs could do well to be careful in this time. When governments are so strapped for money, the sight of hundreds of billions sitting idle is a tempting target. As western politicians have shown in their attitude to the vast pools of capital built up in Asia and the Middle East through trade imbalances and oil windfalls, if this capital is not seen to be deployed, they can put a lot of pressure to get it moving. Cash management might have to give way to capital deployment.

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