Apple’s bananas finance arm

The Economist

Apple is morphing into a financial firm “by stealth,” said The Economist. The world’s most valuable company has quietly built a colossal financial arm now “roughly half the size of Goldman Sachs.” If you lumped all of Apple’s financial activities into one subsidiary—let’s call it Apple Capital—it would have $262 billion in assets and $108 billion in debt. Since 2011, it would have traded $1.6 trillion in securities. Numbers like those demand “some scrutiny.” “Apple Capital” has three main tasks: invest the company’s monster profits, use derivatives to guard against currency fluctuations, and manage Apple’s debt and tax bills. Notably, as Apple’s cash pile has grown, “Apple Capital” has shifted away from risk-free investments

toward “racier assets.” Its derivatives portfolio has also more than quadrupled in size since 2011, to $124 billion. Those shifts should give analysts pause. Apple’s “divided geography” strategy could also be destabilizing. Because it keeps overseas profits abroad to avoid U.S. corporate taxes, the “foreign operation swims in cash.” But the domestic operation “drowns in debt,” because Apple’s U.S. profits don’t cover the cost of stock buybacks and dividends to U.S. investors. Apple has borrowed money to pay for that—debt that now totals $92 billion. Yes, Apple is massively profitable. But add in a market shock or a large interest-rate bump, and “it’s easy to imagine how ‘Apple Capital’ could hurt its parent.”