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French companies benefiting from state aid can't buy back shares

uk.reuters.com

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Re: French companies benefiting from state aid can't buy back shares

#41

Post by adev_ »

sfj wrote: post #20
mooshmoosh wrote: post #14

Perhaps a better approach would be to require these companies to maintain capital ratios like we do for banks. They could be forced to raise more equity if their debt becomes too large. After all the point should be to prevent them from needing future bailouts. I mean there are other ways to extract money from a company than paying dividends or doing share buy backs. Are they also going to cap salaries for employees?…

Why aren't we letting them fail instead of allowing these idiots to stay in business? Say American Airlines went bust. It's debtors would get its planes and other company assets, who would then in turn sell them to other airlines. A new airline might form to take its place, which would probably be a little more prudent than the last one.

> A new airline might form to take its place, which would probably be a little more prudent than the last one.

It's a pretty innocent view of the world.

Or the new company would just behave exactly like the old one because it is the best short term strategy for shareholders.

And anyway, in case of new crisis, their new high executive will sell their share right before (exactly like Jeff Bezos did https://www.theguardian.com/business/2020/mar/27/jeff-bezos-...) and look for a new job.

Any public company stopped to think long term a while ago. Prudent means less profitable.

Re: French companies benefiting from state aid can't buy back shares

#42

Post by simiones »

jylam wrote: post #30
tsimionescu wrote: post #27

Earlier quoted context omitted.

You omitted the important parts: > Toutes celles qui auraient bénéficié de reports de charges sociales ou fiscales et qui auraient versé des dividendes se verront obligées de rembourser cette avance de trésorerie sur les charges sociales et fiscales, avec une pénalité d’intérêt. So, he asked the all companies whose employees are being partially payed by the state to be very moderate in paying dividends. But they will…

Exactly. " he asked the all companies whose employees are being partially payed by the state to be very moderate in paying dividends", my point.

But the Reuters article isn't talking about that. It is talking about the companies receiving direct state aid, which will not be permitted to pay dividends, under penalty of paying the money back to the state, with interest. So the Reuters article is absolutely correct. You are just dismissing an unrelated claim.

Re: French companies benefiting from state aid can't buy back shares

#44

Post by fock »

adev_ wrote: post #41
sfj wrote: post #20

Earlier quoted context omitted.

Why aren't we letting them fail instead of allowing these idiots to stay in business? Say American Airlines went bust. It's debtors would get its planes and other company assets, who would then in turn sell them to other airlines. A new airline might form to take its place, which would probably be a little more prudent than the last one.

> A new airline might form to take its place, which would probably be a little more prudent than the last one. It's a pretty innocent view of the world. Or the new company would just behave exactly like the old one because it is the best short term strategy for shareholders. And anyway, in case of new crisis, their new high executive will sell their share right before (exactly like Jeff Bezos did https://www.theguard…

maybe people might realise through the ensuing turmoil what a shitshow business has become actually...

Re: French companies benefiting from state aid can't buy back shares

#45

Post by Mengkudulangsat »

pianom4n wrote: post #25
neximo64 wrote: post #7

Earlier quoted context omitted.

To play devil's advocate here, how is that any different from increasing your dividends?

It's exactly the same as a dividend, except the tax consequences are opt-in for shareholders. Only those who sell their shares are affected, unlike dividends which are equivalent to forcing all shareholders to sell an equal portion. Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math. In the article it says this rule ap…

The rage against buybacks is how many are funded - through debt. Boards are gearing their companies to the hilt to fund shareholder returns (in whatever form), to the point the ship itself is rendered unable to whether significant storms.

If bailouts are normalized, there is no disincentive against such reckless behavior. I would like there to be permanent cash buffers to fund 1 year HR costs before any form of shareholder returns are allowed.

Re: French companies benefiting from state aid can't buy back shares

#46

Post by hnarn »

btrask wrote: post #40

Why aren't shareholders on the hook for bailing out their own companies? They have the financial incentive to protect their own investments. Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout? Edit: Why don't companies raise money by issuing more stock? Isn't that what the stock matket is for?

> Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout?

Bailing a company out is just a euphemism for making a very high risk investment that the market is unwilling to do. Putting aside whether that is the correct thing to do or not, the option would likely (in a recession) be mass unemployment, so there's an incentive from the state, that likely wishes to avoid that scenario, that doesn't exist in the same way for "regular" investors.

That said, it makes sense that if you pull the emergency lever and request a state bailout, you should pay future dividends back to the state for at least a decent amount of time since they basically gave you a loan that no-one else would.

Re: French companies benefiting from state aid can't buy back shares

#47

Post by fock »

ajsnigrutin wrote: post #34
sfj wrote: post #20

Earlier quoted context omitted.

Why aren't we letting them fail instead of allowing these idiots to stay in business? Say American Airlines went bust. It's debtors would get its planes and other company assets, who would then in turn sell them to other airlines. A new airline might form to take its place, which would probably be a little more prudent than the last one.

In some indistries, that means thousands of people without work, and hundreds of other companies in the supply chain going bankrupt, and even more people without work. Sometimes it's cheaper to bail out the main company, then to deal with the unemployed, many more bankrupt companies etc. But some regulation should be put in place... if a CEO fscked up the company so much, it needed government bailout, they don't dese…

can you explain to me, why we can not regulate the very same companies in the good times then?

Re: French companies benefiting from state aid can't buy back shares

#48

Post by hnarn »

bradleyjg wrote: post #43

I don’t have a big problem with stock buybacks in general. But if companies buy back stock when times are flush they ought to be issuing new stock to raise money when times are lean. Not putting their hands out to the public fisc.

Just for the sake of argument, isn't the argument against buybacks that it may skew the indicators for how well the company is doing? You have earnings and then you have amount of shares: buy some shares from the public, and your "earnings per share" goes up even if the earnings haven't changed.

In my view, this is radically different from, for example, buying the whole public stock and going private.

Re: French companies benefiting from state aid can't buy back shares

#49

Post by nabla9 »

.. or dividends as the article says.

Devil is in the details. Maybe French government has good conditions for the aid, but the article is not giving details.

Aid should be exchangeable debt for public companies. No dividends and buybacks. No executive bonuses or options until the debt is paid full. After (5-7) years the remaining debt is exchanged into company stocks in a rate that leaves the government in the neutral position or with small profit. I think it would be OK to give compensation package to executives if it's tied to the profit that the government makes from the aid.

The aid should be available to everyone with same conditions. Not doing so punishes companies with good finances.

Having right incentives as a whole is the issue, not some implementation details.

Re: French companies benefiting from state aid can't buy back shares

#50

Post by londons_explore »

hnarn wrote: post #46
btrask wrote: post #40

Why aren't shareholders on the hook for bailing out their own companies? They have the financial incentive to protect their own investments. Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout? Edit: Why don't companies raise money by issuing more stock? Isn't that what the stock matket is for?

> Why is bailing out a compay different from "investing" in it? What is an investment besides a non-emergency bailout? Bailing a company out is just a euphemism for making a very high risk investment that the market is unwilling to do. Putting aside whether that is the correct thing to do or not, the option would likely (in a recession) be mass unemployment, so there's an incentive from the state, that likely wishes…

It's a loan with conditions. Not all that unusual. Each company can decide if they accept the conditions or want to reject the loan offer and get their finance elsewhere.
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