US cos hoard cash to beat credit blues

NEW YORK: Two years after credit markets seized up and caused the worst financial crisis since the Great Depression, companies are hoarding the most cash in at least a decade.

���Every action we take or contemplate taking is measured by its impact on our balance sheet and liquidity,��� said Mark Jacobs, the chief executive officer of Houston-based RRI Energy.

The company sold its Texas retail electricity business and the Reliant brand name in May, helping triple cash and equivalents from a year earlier to 18% of assets.

Even as government reports show that the first global recession since World War II may be easing, corporate treasurers are raising cash as fast as they can, wary of losing access to capital. Corporate defaults reached 10.7% worldwide in July, the highest since 1991, according to Moody���s Investors Service.

Credit markets that started to freeze in August 2007, have now triggered more than $1.5 trillion in writedowns and losses at the world���s biggest financial institutions. Cash and short-term investments accounted for about $1.98 trillion, or 8.2%, of assets at the end of the second quarter for companies in the Standard & Poor���s 500 index, up from about $1.6 trillion, or 6.4%, a year earlier. Cash reached a record $2 trillion in the first quarter, 8.3% of assets. ���Cash is king,��� said Paul Kasriel, the chief economist at Northern Trust in Chicago. ���Businesses are in survival mode right now.���

While companies sold a record $837.9 billion of bonds this year and raised $109.8 billion in stock offerings, the increase in cash shows they are following the lead of consumers, who pushed the US savings rate to a 14-year high of 6.2% in May.

���There���s going to be a generational psychology shift as to how you and I and the rest of the world think about finance,��� said Jonathan Fine, a managing director on the investment-grade syndicate desk at Goldman Sachs Group in New York. ���People will keep cash on hand so long as what happened in the last two years remains
so visible in the rearview mirror.���