Low rates push Europe's companies into riskier investments

London

EUROPEAN firms squeezed by low interest rates are having to consider new, riskier ways to manage trillions in corporate cash as they are snubbed by banks awash in new regulation that may also spell the demise of their go-to investment funds.

In order to protect and grow their companies' money and ensure it is easily accessible to pay wages, invoices and dividends, treasurers are being forced to look at less secure assets and deal with some of them directly. "There is a tectonic shift in the cash management landscape," said Alastair Sewell, a managing director at Fitch rating agency. "One option is to take on more risk."

Corporate treasurers have been under pressure since the financial crisis of 2007-09 when the collapse of banks such as Britain's Northern Rock and Lehman Brothers in the US - and the ensuing panicked withdrawals from money market funds - rattled confidence about where to stash firms' cash.

Determined not to be caught short in the next crisis should banks cut off their funding, company treasurers in the US, Britain and the eurozone have more than doubled their cash holdings since 2000 to US$5.3 trillion.

But now, firms find the banks don't want their money.

A side-effect of new financial regulation aimed at making banks safer by forcing them to hold more capital and low-risk assets means lenders now have to classify some large corporate depositors - traditionally more flighty than small retail customers - as high risk.

That also means banks can only invest those corporate funds in very liquid assets that restrict them from making much in the way of commission. "They won't say no to you, they will just quote you the worst rate they can," said one London-based treasurer.

Some major banks such as Commerzbank and BNY Mellon are also charging some of their customers for euro deposits, passing on the cost of a decision by the European Central Bank in June to charge banks for overnight deposits - a rule introduced to force banks to go out and lend.

It's another consequence of the record low interest rates that make it difficult for companies to make any return from deposits. Reuters