2015 All-America Research Team: Accounting & Tax Policy, No. 3: David Zion

David Zion

Credit Suisse

First-place appearances: 2

Total appearances: 13

Analyst debut: 2003

Tumbling from first place to third isDavid Zion, who in December returned to Credit Suisse, where he worked for 11 years before leaving in July 2013 for ISI Group (now Evercore ISI). He continues to impress clients with his “rare ability to translate complex accounting concepts, like foreign currency translation or pension accounting, into language that investment practitioners can use to improve their models and analyses,” as one fund manager says. Zion, 46, has been urging clients to be mindful of the elevated levels of funds that American corporations have amassed overseas and the impact those holdings could have on balance sheets’ health and flexibility. S&P 500 constituents’ cumulative earnings parked outside the U.S. “continue to hit new highs,” he reports, having traversed the $2 trillion mark, which includes at least $690 billion in cash. Growth, however, has slowed in recent years. “The $157 billion in foreign earnings stashed away during 2014 was the lowest amount in the past five years,” the researcher notes, “and it has fallen each year since hitting a peak of $253 billion in 2011.” He postulates that “maybe companies need to repatriate funds back to the U.S. for buybacks and dividends, or it’s getting harder to claim the foreign earnings are ‘indefinitely reinvested,’” — given the sizable offshore cash reservoir. “Plus, foreign profits have dropped,” Zion points out. Some $301 billion was earmarked for return by the S&P 500 components in 2014, “the highest level since the last repatriation holiday,” nearly a decade earlier. All of this adds up to an estimated $533 billion in off-balance-sheet liabilities on the earnings now stationed overseas. For 68 companies, he advises, the potential taxes owed represent more than 5 percent of their market capitalizations — 14 of those entities face possible assessments surpassing 10 percent of market cap. Meanwhile, American multinationals that continue to cache funds offshore will feel the heat in the form of congressional hearings, regulatory scrutiny and even public disapproval — and investors will want to know what they will do with the stockpiled cash on their balance sheets. It’s an issue, he says, that money managers should really care about.