So much cash is raining down on some US-based corporations that they are at a loss on what to do with all the money.
With the US$250 billion (NZ$361 billion) sitting in its bank account, Apple could comfortably go out and buy Chevron, the second-largest US oil company, at today’s market price without borrowing a penny.
The technology giant would still have US$50b left to buy more than 700,000 Tesla model S electric cars or about four aircraft carriers.
Then there’s Microsoft. The Seattle-based software maker has the second-largest stash, at US$126b.
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And the blizzards of green are not limited to the tech sector.
Legendary investor Warren Buffett will preside over his annual Berkshire Hathaway shareholder meeting this weekend in Omaha – known as “Woodstock for Capitalists” – while his company sits on US$86b in cash.
The cash hoards are coming to the forefront as earnings season is heating up. US companies are reporting mostly robust profits, and the stock market, especially technology shares, are ballooning.
Some investors have cautioned that equities are frothy in light of the geopolitical risks such as North Korea and the political divide in the country.
A big part of the reason behind the rich corporate caches is taxes – or unpaid taxes.
Apple, Microsoft and many other US-based international companies are sitting on well more than US$2 trillion in cash from untaxed overseas profits, which could be brought back to the United States to be used for investment and dividends if lawmakers lower the US corporate tax rate, which at 35 per cent is one of the highest in the world.
“Apple is one of the best companies in the world, and a third of their value is sitting in vaults in Switzerland and Luxembourg and Dublin,” said Timothy Loughran, a finance professor at the University of Notre Dame’s Mendoza College of Business. “Isn’t that pathetic?”
The Trump administration has promised to lower the US corporate tax rate significantly. Economists and politicians on both sides of the aisle have said a lower corporate tax rate or a tax holiday that repatriates money from overseas will unleash hundreds of billions of dollars, if not trillions, in dividends and business investments in the United States.
Apple chief executive Tim Cook, in an interview last year, said federal and state taxes on Apple’s cash reserves, the vast majority of which is overseas, is about 40 per cent. Many US-based companies leave their earnings overseas rather than pay the US rate.
“We’ve said at 40 per cent, we’re not going to bring it back until there’s a fair rate,” Cook said, adding that his company is the largest US taxpayer. “There’s no debate about it. It is the current tax law. It’s not a matter of being patriotic or not patriotic.
“We think it’s fine for us to pay more, because right now we’re paying nothing on that and we leave it over there,” he said. “But we – like many, many other companies do – wait for the money to come back.”
If the corporate rate is reduced or a holiday is granted, Apple, Microsoft and others could pay a special dividend, buy back shares or both.
They could also make acquisitions, although Apple has preferred to grow organically by inventing new products such as the iPhone and iPad and investing in itself.
Apple earned US$45.6b in profit in 2016 on revenue of US$215b.
“What is going to happen when Apple has US$1 trillion in cash?” said Loughran.
“It won’t be that long. What are we going to do then? The way I think about it is the treasure of America sitting in a vault in Switzerland. We created US$250 billion from profits and we are not using it. This is an obvious reform that is needed.”
Kass said he expects a major return by Apple to shareholders through several vehicles, including an increase in the Apple dividend, stock buybacks and a big one-time dividend.
He said it is less likely that Apple would make acquisitions, given the company’s historic aversion to them.