March 31, 2014 5:59 pm

Corporate America’s overseas cash pile rises to $947bn

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U.S. 100 dollar bank notes are taken in Tokyo in this August 2, 2011 file picture illustration. The U.S. dollar may weaken and Treasury yields rise when Asian markets reopen on Monday August 8, 2011, though any selling in response to ratings agency S&P's downgrade of the United States is likely to be tempered by the escalating crisis in the euro zone. The S&P cut in the U.S. long-term credit rating by a notch to AA-plus is an unprecedented blow and results from concerns about the nation's budget deficits and climbing debt burden. It called the outlook "negative," signalling another downgrade is possible in the next 12 to 18 months. REUTERS/Yuriko Nakao/Files (JAPAN - Tags: BUSINESS POLITICS)©Reuters

American companies have stockpiled nearly a trillion dollars of cash offshore to avoid paying higher tax bills at home, according to an analysis released on Monday.

The growing overseas cash pile has also become the most visible sign of corporate America’s unwillingness to place bigger bets on business expansion, despite unparalleled financial conditions.

Total cash reserves of US companies climbed to $1.64tn last year, according to the report by Moody’s Investors Service, the credit rating agency. That was $180bn or 12 per cent more than the year before.

Many American companies keep their foreign profits offshore rather than face higher taxes if they bring it home to invest, or to pay out in the form of dividends or stock repurchases.

The highly conspicuous foreign holdings, which reached $947bn last year, up 13 per cent from 2012, have brought an increase in shareholder activism, as investors have pressed companies to pay out more of their financial reserves in dividends and stock buybacks. In a break from its highly conservative financial strategy under the late Steve Jobs, Apple paid out $33bn last year – though that was still about $20bn short of its total cash profits.

A strong corporate lobby, particularly made up of the tech companies that account for nearly half of all the overseas cash, has pushed for a tax holiday, which they argue would help the US economy.

However, attempts at broader tax reform have stalled, and critics claim that much of the money that has built up offshore was the product of tax-avoidance measures and should not be allowed to escape higher US taxes in future.

Overall, corporate America is swimming in more than twice as much cash as it had as recently as 2007, according to the Moody’s report. That is despite a rise in capital spending from $862bn to $869bn in 2013, the highest level on record.

Interactive graphic

Cash reserves broken down by sector

January 2014: Of non-financial companies in the S&P Global 1200 index, just 8.4% hold 50% of the cash

Explore graphic

Business investment has not kept up with rising corporate profits in what has been a golden age of profitability, particularly in the tech sector. Tech companies now produce a massive 60 per cent of all the cash flow of companies outside the financial sector, according to Moody’s.

The surging excess profits point to them holding an even larger share of US corporate cash than the 39 per cent they already own. By comparison, companies in the second richest sector, healthcare and pharmaceuticals, account for only 15 per cent of the total.

The financial crisis was followed by a collapse in capital spending in 2009 and 2010. Although companies subsequently regained some of their optimism and started to spend more on expansion, the level of investment has flattened out. Many companies, although swimming in cash, are cautious about economic growth prospects and choosing to conserve their money.

Much of the cash held offshore is in low-yielding US government debt, according to a study earlier this month by the UK’s Bureau of Investigative Journalism.

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