James Gifas is the executive vice president and head of the treasury solutions group for RBS Citizens since 2008. He directed the development of RBSâ€™s corporate mobile offering, accessMOBILE, in 2010. Previously, he has served in senior roles at Citibank and Deutsche Bank. Recently he was responsible for a study conducted by the Association for Financial Professionals, underwritten by Citizens, concerning short-term corporate cash is increasingly moving towards banks, with bank deposits now accounting for 51 percent of short-term corporate investment balances.
PBN: According to the survey, elevated cash concentrations on bank balance sheets are expected to continue. What, exactly, is the present status?
GIFAS: Over the last few years weâ€™ve seen more of our corporate customers migrating more of their money toward bank deposits. We definitely have seen a big increase in 2012, an increase of 9 percent, which is very high. This has been driven by our customers that are looking at safety and soundness as being their primary concern. more than their yield.
PBN: Why is it expected to continue?
GIFAS: They have been looking at their investment options but arenâ€™t seeing any out there. They are opting for safety, which has driven the balances up. The economy seems to be standing still and there isnâ€™t much growth. Right now itâ€™s safety first and yield second. Corporate boards are enforcing very strict guidelines on where they will place those funds and I see that continuing.
PBN: What short-term conclusions can you make from this trend â€“ what does it indicate?
GIFAS: Historically, bank customers diversify their deposits to try to maximize their returns. With the downturn in the economy, corporate customers are looking for soundness and stability and have been depositing their money in corporate term deposit accounts at their bank. What you see is an increase in bank deposit figures.
What we are also seeing is that they are looking to us for insight, looking for investments that will not affect their principle.
PBN: What have you personally observed?
GIFAS: Large or small, Iâ€™ve seen it across the board. Smaller companies have less to hold onto than the larger ones but they are all doing the same thing, saving money. But the mood among almost all of them has been optimistic. They are looking for opportunity, to do something with it. They are being more careful in where they invest it.
I think they are looking for acquisitions, looking for something that might help them grow their business but they wonâ€™t take any risk.
PBN: Does this trend run counter to banks wanting to issue commercial loans, and if so, how do you convince companies otherwise?
GIFAS: Of those responding, about 10 percent said they would use their deposits to pay down debt. The majority of them are on the sidelines, optimistic and ready to borrow, but they also are looking to use a lot of capital to make investments in their business. I find that itâ€™s a balance of using capital efficiently but also leveraging the bankâ€™s balance sheet as well.
These arenâ€™t new issues, itâ€™s just that it is hitting them all at the same time. They have foreign exchange risk, investment, sovereign risk; whether they are purely a domestic customer purely in the United States, or they do business in multiple regions, they are affected by the same issues.
Before, when there were economic issues in the U.S. they would just go and invest in Europe because there could be some opportunity for growth. Now, Europe is having those same challenges. So is Asia.