When the coronavirus pandemic hit last year, corporate executives rushed to raise money. Banks have been holding that cash ever since, and because companies are reluctant to borrow from them, they can’t turn it into income-generating loans. That has weighed on banks’ profit margins, and some have started pushing corporate customers to spend the cash on their businesses or move it elsewhere.
Bankers say they thought the improving economy would reduce companies’ desire for holding cash, but deposit inflows have continued in recent weeks. Chief financial officers and treasurers, many still wary of the pandemic’s impact, say they aren’t ready for big changes, even if they earn little or nothing on their deposits.
“We have been operating with a higher cash balance for about 12 months now,” said Matthew Ellis, the chief financial officer of telecommunications company Verizon Communications Inc. “There’s been no decision yet if and when to bring it down.” Verizon held $10.2 billion in cash and cash equivalents at the end of the first quarter, up 45% from a year earlier.
Pascal Desroches, who manages the finances of rival AT&T Inc., said the company doesn’t plan to move its cash holdings into other investments to generate a higher return. “We are not looking to optimize the yield,” he said.