The weekend Wall Street Journal featured "Why Investors Can't Get More Cash Out of U.S. Companies", which discussed the high levels of cash and corporate balance sheets and how the majority of it is trapped offshore. The Jason Zweig Intelligent Investor column said, "Earlier this month, Microsoft borrowed $2.25 billion in unsecured debt. What in the world possesses a company with $40 billion in cash and short-term securities to go out and borrow money? Rock-bottom interest rates are one reason. But the bizarre, byzantine U.S. tax code seems to be another."
The article explains, "Politicians have been carping about the more than $2 trillion in cash sitting idle in corporate coffers even as unemployment remains high. But much of that cash isn't in the U.S.; it is abroad. And it isn't likely to come back home unless U.S. tax laws change. David Zion, a tax and accounting analyst at Credit Suisse, estimates that the companies in the Standard & Poor's 500-stock index have 'north of $1 trillion' in undistributed foreign earnings, or profits that have been parked overseas to avoid U.S. tax."
The WSJ piece adds, "U.S. companies are taxed at up to 35% when they bring home the earnings generated through the operations of their overseas subsidiaries.... That can put firms in the peculiar position of having tons of cash offshore that they might need but can't use at home without taking a tax hit.... Congress and the White House are discussing whether the U.S. should follow the rest of the world and stop taxing repatriated offshore earnings from companies that already have paid taxes to foreign governments.... Meanwhile, investors should remember that a big chunk of cash on the balance sheet may look tempting but isn't necessarily there for the taking."
There has been some discussion recently about a temporary reprieve on taxes on the repatriation of this cash, which happened in 2004, but it doesn't look too promising. Forture writes in "Apple, Cisco, others organize for a tax holiday lobby", "A group of tech, pharmaceutical and energy giants is readying a major lobbying blitz for a tax holiday that would allow them to bring home the estimated $1 trillion they've got parked overseas at a steeply discounted rate."
In other news, the Financial Times quotes from Laurent Ramsey, chief executive of the Swiss-based Pictet Funds, "Unlike in the US, in Europe and Asia distribution is controlled by banks and it's a concentrated distribution market, therefore distributors have control of the clients. They have scale and have big power in negotiations, and therefore the fee sharing is more to their advantage.... In some cases you have to stick to your guns. Money market funds, net of fees, should deliver positive returns to clients. When investment returns go to zero it becomes difficult.... `We slashed fees to rock bottom levels but in doing so we had some distributors who said 'we are not really interested in your money market funds, we don't get anything because there is nothing there to give'. We lost a relationship."
