Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

The CN Tower is reflected in glass amongst office buildings in Toronto on Sept. 28, 2020.

Mark Blinch/The Globe and Mail

Once corporate Canada is comfortable spending money again, it will have a rather large pile of cash to put to work.

Canadian businesses have built up an excess cash position of approximately $80-billion over and above the prepandemic trend, according to CIBC estimates.

With a second wave of COVID-19 infections well under way, caution will likely prevail over the course of what is shaping up to be a difficult winter.

Story continues below advertisement

“We expect a relatively swift deployment of excess cash in the spring and into the summer,” Benjamin Tal, deputy chief economist at CIBC World Markets, wrote in a report.

“Keeping cash positions at current levels is hardly optimal and is thus unsustainable.”

It’s also fairly unusual, given the economic circumstances. In a recession, total business deposits tend to remain flat and steady, as cash preservation and reduced profits roughly offset one another.

This time around, Canadian businesses have grown their cash position by close to 15 per cent over last year, just one of the ways this recession is unlike any other.

Early on in the pandemic’s first wave, central banks forcefully intervened to keep liquidity flowing through the financial system, heading off the kind of credit crunch that morphed into the global financial crisis more than a decade prior.

With interest rates so low that money is basically free, Canadian corporations have tapped debt markets at will. They borrowed to build up war chests, to prefund planned projects, to refinance existing debt with better terms, and to keep dividends flowing.

Investment-grade issuance in Canada more than doubled in the first seven months of 2020, compared with the same timeframe last year, according to a report by credit-rating agency Moody’s.

Story continues below advertisement

Add in the unprecedented levels of monetary and fiscal stimulus by the U.S. Federal Reserve and the Bank of Canada, and corporate coffers have been flooded with liquidity.

The same goes for Canadian households. The initial surge in emergency government spending related to the pandemic was focused on quick deployment, and it more than offset the hit to Canadian incomes from layoffs and furloughs.

As a result, disposable income in the second quarter actually increased. And with fewer options to spend that money, many Canadians stashed it away. As of the end of June, the savings rate soared to 28.2 per cent, up from 3.6 per cent before the pandemic.

“COVID-19 has triggered the largest cash accumulation in recorded history,” Mr. Tal wrote.

On the corporate side, easy access to cash has allowed the Canadian corporate sector to largely maintain dividends, even as earnings fell off a cliff.

The second-quarter hit to earnings for S&P/TSX Composite Index companies, for example, was 42 per cent, year over year, according to Refinitiv data.

Story continues below advertisement

And while dozens of small and mid-cap companies were forced to cut dividends, the large-cap segment of the market emerged unscathed, with the notable exception of Suncor Energy Inc., which reduced its payout by more than half in May.

Aggregate TSX dividends have remained steady so far this year, despite what is projected to be a 21-per-cent decline in 2020 earnings.

That continuity of dividends should remain, as long as there is an abundance of cash and liquidity, said Ryan Bushell, president and portfolio manager of Toronto-based Newhaven Asset Management.

“Unlike ’08-’09, we didn’t have a crisis of confidence, and so there hasn’t been an impetus to pull in the reins in any way you can.”

It’s less clear, however, that excess cash and ready access to credit markets will result in a resurgence of investment by Canadian corporations, once the pall of the pandemic finally lifts, Mr. Bushell added.

“Cash hoarding is nothing new. People have been waiting on that to go into capital investment for the last decade.”

Story continues below advertisement

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you manage your health, your finances and your family life as Canada reopens.
Visit the hub

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies