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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

#181

Post by jahaja »

smt88 wrote: post #167
jahaja wrote: post #118

Earlier quoted context omitted.

What exactly is the historical basis that it's unintended? The origins of capitalism are hardly a display of democratic prowess.

While the ideal of capitalism -- the freedom of capital -- may not be everyone's ideal, its proponents often say that it also leads to the freedom of individuals. I disagree, but it's definitely possible to have a regulated capitalist society with high levels of individual prosperity and freedom (e.g. Denmark).

Well, as a Swede I'm aware of a middle-ground social democracy. But that's unrelated to what I asked about. It wasn't capitalism that made Scandinavia social-democratic. It was through hard fought labour struggles and through socialist ideals that drove the capitalist into far reaching concessions under the threat of revolution.

So that doesn't say anything about how it's unintentional, if anything it just underlines it.

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

#183

Post by arethuza »

boomlinde wrote: post #152
arethuza wrote: post #85

Earlier quoted context omitted.

But isn't the whole point of limited liability is that shareholders aren't "on the hook" for anything other than the money they have already invested?

Yes, but I don't see how that contradicts what GP suggests. Shareholders are on the hook for their own investments. Artificially bailing them out takes them off that hook by preventing bankruptcy. It disincentivizes responsible financial management. Why not spend 95% of profits on buybacks if the government is ready to catch you? The only thing that makes it a question at all in my view are the potential social conse…

I read it that what was being advocated was that shareholders would be compelled to provide additional funds, rather than just standing to lose the amount they had already invested.

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

#184

Post by MiroF »

dumbfoundded wrote: post #173
joosters wrote: post #164

Earlier quoted context omitted.

Companies (and their directors) care about the share price because their owners care about the share price, since they are the shareholders. If the directors and bosses stopped caring about the share price, the shareholders would be more likely to kick them out and recruit some more co-operative people. If you want companies to care less about share prices, you'll have to structure companies differently.

Of course, companies will always care about the stock price. And that's a good thing. There should be strong limits on the way to increase that price. Increasing the value of the company? Awesome, go ahead. That's what the bailout is supposed to be for. Buying back stock? No. No value is created.

Sure, but changing C-suite compensation from being stock-based won't change the dynamic around buybacks because the buybacks are pushed by the owners not just the management.

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

#185

Post by gpderetta »

School-Cotton wrote: post #128
adwww wrote: post #80

Earlier quoted context omitted.

It's symbolic of short-termism. Instead of saving cash for emergencies or investing in new equipment, research or product lines, the cash is just 'wasted' on manipulating a share price in order to boost quarterly targets. A lot of the time, management is then rewarded for the increased share price, which doesn't necessarily reflect the performance of the business in terms of their ouput, number of widgets sold or wha…

You didn’t explain how this is different from dividends.

Dividends do not increase the share price (the reverse in fact).

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

#186

Post by tenpies »

nabla9 wrote: post #49

.. 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 neutra…

All I can think of is that it sucks to be a pensioner or pension fund manager. Going to be really interesting to see the second quarter consequences of the "buy backs and dividends are evil" movement.

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

#187

Post by abakker »

dumbfoundded wrote: post #173
joosters wrote: post #164

Earlier quoted context omitted.

Companies (and their directors) care about the share price because their owners care about the share price, since they are the shareholders. If the directors and bosses stopped caring about the share price, the shareholders would be more likely to kick them out and recruit some more co-operative people. If you want companies to care less about share prices, you'll have to structure companies differently.

Of course, companies will always care about the stock price. And that's a good thing. There should be strong limits on the way to increase that price. Increasing the value of the company? Awesome, go ahead. That's what the bailout is supposed to be for. Buying back stock? No. No value is created.

This whole issue is overblown. Employees, retirees, and generic Wall Street investors have a preference for buybacks because it leaves equity holders with the ability to put their capital to good use. I don’t want GE to invest in vanity projects if they don’t have good ideas. Buy back shares, return capital to shareholders, and let shareholders invest in something else.

There two sides to a buyback transaction, and saying it creates no value is BS. Someone is SELLING.

If the issue is just using debt to buy equity, then there is some discussion to be had, but even then, the result looks more like a need for a stress test/capital buffer rather than a ban. Alternately, just modify the tax treatment of buybacks to look exactly the same as dividends.

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

#188

Post by unlinked_dll »

dumbfoundded wrote: post #173
joosters wrote: post #164

Earlier quoted context omitted.

Companies (and their directors) care about the share price because their owners care about the share price, since they are the shareholders. If the directors and bosses stopped caring about the share price, the shareholders would be more likely to kick them out and recruit some more co-operative people. If you want companies to care less about share prices, you'll have to structure companies differently.

Of course, companies will always care about the stock price. And that's a good thing. There should be strong limits on the way to increase that price. Increasing the value of the company? Awesome, go ahead. That's what the bailout is supposed to be for. Buying back stock? No. No value is created.

Buybacks are just dividends but more flexible for the company. It boosts stock price because it tells investors that the share is more than a speculative vehicle.

Returning value to shareholders isn't nefarious.

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

#189

Post by _ea1k »

hnarn wrote: post #62
bradleyjg wrote: post #57

Earlier quoted context omitted.

If that were so, then the accounting profession has failed at its core responsibility. But I don’t think it has, the information is there for investors to see. If some investors choose to obsessively focus on a single metric, well—-a fool and his money are soon parted.

I may be a bit daft here but in what way is this related to the work of accountants? The number isn't wrong, there's just context that's easily missed. The "buyer beware" logic can be used for a lot of things ad infinitum, you could argue the same thing about a company straight up lying about certain sales possibilities etc. but that would legally be fraud, so it's not black and white.

It isn't accountants. It is all the financial advice and teaching that focuses on Price to Earnings as a meaningful way to measure valuations at the exclusion of a lot of other equally meaningful metrics.

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

#190

Post by dehrmann »

redis_mlc wrote: post #4

Prediction: that won't be a precondition in the USA, and if it was, most companies would decline the aid. You see, buybacks are "that one weird trick" where you can steal from the market, by inflating the EPS and hence your employee stock options, and not go to jail.

I see buybacks just as an alternative to dividends. They do mean more valuable options, but I wouldn't call them "steal[ing] from the market" since they give shareholders more ownership of the company. I actually prefer buybacks to dividends because record keeping for DRIP can be messy, but more importantly, dividends are taxed as income, while gains from buybacks will see the lower capital gains rate (if you hold for a year). That's the real reason no actual shareholder seems to mind buybacks.
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