U.S. financial firms hoarded cash: report

NEW YORK Mon Aug 25, 2008 3:19pm EDT

Related Topics

NEW YORK (Reuters) - Big U.S. financial companies hoarded cash so they would not be strapped amid a credit crunch that has lasted more than a year, according to a recent report from Thomson Reuters.

Financial firms that are part of the Standard & Poor's 500 stock index .GSPF raised the cash and cash equivalent portion of their total assets to 4.5 percent in the second quarter, up from 3.0 percent for the same period a year earlier, the company said in a report published last week.

"Financials are being cautious in the short term by increasing liquidity in case they are faced with a critical situation," Amitesh Kumar, a Thomson Reuters analyst, wrote in the report.

S&P 500 financial companies include the biggest U.S. commercial and investment banks such as Citigroup (C.N), JPMorgan (JPM.N) and Goldman Sachs (GS.N).

A number of them, including mortgage finance giants Fannie Mae FNM.N and Freddie Mac FRE.N, have written off billions in bad mortgage-related investments stemming from the housing slump.

In contrast to their financial counterparts, S&P 500 non-financial companies reduced the percentage of their cash holdings during the same span, the report showed.

Non-financial companies saw the proportion of their cash assets fall to 8.3 percent in the second quarter from 9.0 percent in the same quarter in 2007.

Overall, S&P 500 companies trimmed their short-term debt and increased their long-term obligations over the past couple of quarters, according to Kumar.

At the end of the second quarter, 14.4 percent of assets were backed by short-term debt, down from 19.2 percent a year ago. Meanwhile, the share of long-term obligations grew to 22.9 percent from 21.2 percent in the 2007 second quarter.

But the current quarter indicates a decrease in both areas, Kumar said.

Short-term financing has been limited, as financial companies have been reluctant to make loans. Companies have turned to the capital market in recent months to raise long-term funds.

(Reporting by Richard Leong; Editing by Leslie Adler)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.