More shareholder activism on horizon: Levkovich

NEW YORK (Reuters) - Shareholders are likely to become more active in forcing companies to put to work the vast amounts of cash they are hoarding on their balance sheets, Citigroup's chief U.S. equity strategist said.

"There are companies that can reward shareholders -- they can buy back stock, they can pay dividends. They're the ones that have the ability to control their own fate," said Citigroup's Tobias Levkovich, who was speaking at the Reuters Investment Outlook Summit in New York.

Even though companies can earn around 5 percent now keeping their cash in the bank, Levkovich says that's not high enough to satisfy shareholders.

"That's a lousy return on invested capital. I think people will get beat up for that. Investors will say, 'Why are you sitting on 5 percent? Buy back your stock," Levkovich said. 'You're starting to see that kind of activism."

Idle cash will become the target of hedge funds, which must seek out ways to make high returns now that Japan has ended quantitative monetary easing, removing a source of cheap liquidity the funds were able to use to leverage risky trades in emerging markets.

In the past year, hedge funds have pushed for change at companies such as OfficeMax Inc. (OMX.N: Quote, Profile, Research, Stock Buzz), Time Warner Inc. (TWX.N: Quote, Profile, Research, Stock Buzz) and McDonald's Corp. (MCD.N: Quote, Profile, Research, Stock Buzz).

Also likely to spur more of an outcry from shareholders is the growing list of companies being investigated by Federal prosecutors and regulators for possible criminal and civil violations related to the granting of stock options to top executives, Levkovich said.

"This backdated stock options stuff has incensed investors," Levkovich said. "More and more institutions are just flabbergasted and angry about that. Many of them will step behind the hedge funds to shake and rattle the cage."