Treasurer Fear of Credit Freeze Seen in Cash Hoarding

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,” Mark Jacobs, the chief executive officer of Houston-based RRI Energy Inc., told analysts and investors on Aug. 3. 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 percent of assets, according to data compiled by Bloomberg.

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 percent 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.

Translation:

1. Corporate treasurers still don’t trust the banking system
2. If companies take a risk and make a big profit, there is a chance they might get called in front of congress and publicly lynched on camera. Why subject yourself to that? Just sit on your cash and make some interest at little risk.