Freshfields Corporate Cash Barometer 2023

In November 2023, Freshfields Bruckhaus Deringer presented its latest Corporate Cash Barometer, covering seven European countries plus the Eurozone (Austria, Belgium, France, Germany, Italy, the Netherlands and Spain).

The corporate sector of the euro area has undergone a major change, with a historic fall in cash reserves. The decline to €3.307bn, from an all-time high of €3.402bn just a few months earlier, is the first decrease in recorded history and represents a significant departure from the trend observed in recent years. This decline contrasts sharply with the growth spurt seen in the post-pandemic period and signals a possible need for recalibration of corporate financial strategies in light of a changing economic landscape.

Growth of corporate deposits and cash
In €bn p.a., corporate deposits and cash, by country

Within the euro area, corporate cash reserves, though declining, still stand at 23.7 per cent of nominal gross domestic product (GDP). Dutch companies are at the top of the cash to GDP ratio, holding a substantial 32.2 per cent of the country's nominal GDP in corporate cash. Close behind are French companies, which also hold a significant amount of cash, equivalent to 29.8 per cent of France's nominal GDP.

Conversely, German and Austrian companies have more modest cash reserves, each representing around 19 per cent of their national nominal GDP. This places them at the lower end of the scale within the Euro area.

Following the hypergrowth seen in the aftermath of the pandemic, the question arises as to how detrimental, if at all, any cash decline really is. To assess this, we have compared current cash levels to historic trend growth in relation to GDP.

On that measure all major Eurozone countries except Italy are already showing cash deficits with French corporates at the bottom of the list. While the magnitude of cash deficits does not, at this point, seem worrying, future developments needs to be watched carefully.

Corporate cash as a % of GDP
Total corporate deposits and cash, Eurozone, as a % of nominal GDP vs. trend, difference in €bn

The average interest rate on corporate bank deposits in the euro area has risen strongly to 1.36 per cent per annum in September 2023, a recovery from the previous low of -0.01 per cent per annum in May 2022. This change marks a significant shift after a prolonged period of more than a decade of declining deposit rates. With that Eurozone corporates currently generate a record €43bn of interest income up from virtually nothing a year ago. Current interest income from deposits is exactly the same as the previous record at the height of the financial crisis in October 2008. Admittedly current deposit volume is more than two times the value of October 2008.

Interest income from bank deposits
In €bn., annualised, Eurozone, corporates, ∑ of sight, daily payable, term and other deposits

In addition, inflation is less of a burden for Eurozone corporates. The loss of corporate deposits after inflation has decreased to around €94bn annually, which is still more than the GDP of Bulgaria (€85bn for 2022) but much better than last year’s loss of more than €300bn.

Real interest income from bank deposits
In €bn., annualised, Eurozone, corporates, ∑ of sight, daily payable, term and other deposits