A Mountain of Apples

Apple, the computer company, is sitting on $137 billion of cash in its banks. Even by today’s standards that is a huge amount of money.

Generally cash is best used by businesses in the business, as opposed to being kept in the bank. If the business has no need for the cash, the surplus cash should be returned to the shareholders, who would either spend it or invest in in other businesses that would use the cash for the purposes of the business. I cannot imagine what Apple would spend $137 billion on, especially as any large acquisition of a competing business would be blocked by anti-trust and anti-monopoly rules.

There are many other multinationals who are sitting on cash mountains. I think the Apple mountain is the largest.

Keeping the cash in the bank (or invested in bonds) produces a low and apparently risk free return for Apple and their like, although the risks are far greater than appear at first sight.

The banks are no longer the paragons of solvency and integrity.  They are paying huge fines and face potentially damaging lawsuits. Those will reduce their assets and tie up management in defensive actions, rather than on growing and developing the business of banking. In addition all banks have to reduce gearing and improve their balance sheets, which might cause risks to the banks if those actions are not carried out carefully.

One of Apple’s shareholders (described by the press as “an activist” but more properly described as simply a shareholder) is a hedge fund. Hedge funds are noted for their aggressive business practices, and sometimes those practices are to be deplored but sometimes those practices are logical. The hedge fund is suing Apple asking the court to order that Apple releases some of its cash to its shareholders.

That is entirely logical.

There is no doubt that if those businesses who are hoarding mountains of cash release a share of it to their shareholders the cash would work its way through the economy. Shareholders would reinvest in businesses that did not sit on a pile of cash, some of the money would be spent and the governments would take their share in taxes.

However, if you have a big pile of cash you can resist and delay a lawsuit.

I have yet to learn of Apple’s reason for keeping $137 billion in the bank. No doubt the lawsuit will in due time provide the reason. In the meantime the Apple Mountain will grow, albeit very slowly.


One Response

  1. http://userpage.fu-berlin.de/roehrigw/kennedy/english/chap3.htm

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