Tuesday, April 17, 2012

Why Aren't Banks Lending, Pt. II

Last week, I posted a piece on the low rate of bank lending.  I wanted to follow-up on that by looking at various aspects of the overall US corporate balance sheet to get a better idea where corporate funding comes from.

Let's start with total time and savings deposits -- or, more generically -- cash. Right now, there is a total of nearly $600 billion in times and savings deposits sitting on US corporate balance sheets.  Now, there is some skew here caused by a few large companies, but that doesn't explain all of this figure.

The above chart is a logarithmic chart of total corporate debt outstanding.  Right now, there is about $5 trillion in corporate debt out there.  Consider the low rate environment, this is where the medium and large sized companies should go to get funds.

Interestingly enough, corporate paper fell out of favor after the end of the early 2000s recession.  I think part of this is due to the then large amount of cash on hand (see chart of savings deposits); put another way, by the early 2000s, corporations have a total of $300 billion in time and savings deposits on hand.  There is no need to get short-term funding when you can essentially self-fund.

Money market funds have seen a net outflow of cash because, since the beginning of this expansion, these funds have a negative yield.

Trade receivables can usually be quickly cannibalized through factoring; hence, I'm including them, but with the caveat that these are a bit more fact and circumstances specific.

The above chart shows the total amount of corporate financial assets, which now are around $15 trillion.  That is before we take commercial and industrial loans into account as a source of funding.

The above chart is of the total C and I loans outstanding issued by US banks.  The total figure is about $1.4 trillion.   Total C and I loans account for about 9% of total financing available to companies ($1.4 trillion in loans/$15 trillion in total financial assets available to companies).

So, taking all of the above information into account, we get the following.

1.) Corporations have a tremendous amount of cash on hand; the figure currently stands at $600 billion.
2.) Corporations also have issued about $5 trillion in bonds, providing additional financing.
3.) Some businesses also have access to trade receivables for factoring;
4.) Corporations are tapping the commercial paper market less; this figure topped out in the late 1990s at just less than $280 billion; it now stands at $120 billion and has probably been used less because of the high cash balances that corporations began to accumulate.