French companies benefiting from state aid can't buy back shares • Hacker News Board

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

#151

Post by yowlingcat » Mon, Mar 30, 2020, 2:19 PM UTC

athenot wrote: post #119

hnarn wrote: post #46

Earlier quoted context omitted.

> 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…

> 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. This sounds like it should be a similar mechanism as startups' liquidation preference schemes. Investors that provided capital when others wouldn't are in a position to request t…

This is an excellent analogy and a great point. To take your analogy one step further, when startups raise money that results in a less than clean term sheet stacked to the sky with liquidation preferences, it's a result of investors understanding that the firm doesn't really have a choice, and a statement that the terms of their investment are actually that risky. This situation seems like it ought to be remarkably similar.

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

#152

Post by boomlinde » Mon, Mar 30, 2020, 2:25 PM UTC

arethuza wrote: post #85

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?

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 consequences of a bunch of huge companies failing at the same time. If it wasn't for that, I'd say let them fail and let the investors pay for it in negative ROI.

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

#153

Post by _ea1k » Mon, Mar 30, 2020, 2:27 PM UTC

sokoloff wrote: post #91

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…

Presumably companies with strong finances and other options for financing would not want to take on shareholder-unfriendly terms like a multi-year ban on paying dividends or doing buybacks.

Presumably they could refinance the debt by issuing new debt to work around the dividend and buyback rules.

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

#154

Post by SilasX » Mon, Mar 30, 2020, 2:27 PM UTC

Mengkudulangsat wrote: post #45

pianom4n wrote: post #25

Earlier quoted context omitted.

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 share…

Fine, but then rage against that debt regardless of whether it's used for dividends or buybacks. Focusing such hate on buybacks per se is still confused.

Also, it might be worth probing the cause of bizarrely low rates, or wondering if it's a good idea for a high corporate tax rate that distorts behavior so much. (If you're going to reply that the effective corporate tax rate is actually low because they engage in complex schemes X, Y, Z, to reduce their effective rate, then you're agreeing it's distortive and encourages socially-wasteful activity.)

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

#155

Post by smaryjerry » Mon, Mar 30, 2020, 2:31 PM UTC

rorykoehler wrote: post #78

Havoc wrote: post #73

Could someone explain the sudden anger at share buybacks to me? Media seems to portray it as some sort of evil trick, but I don't see it. It's not that different from distributing divs

It's basically rent seeking behavior if you taking public money and then using it to enrich yourself with no benefit to the public. That money could be 1) saved for a rainy day (like now) so they won't have to ask the public for money or 2) reinvested in the company to generate more value. As it is it just sucks value from the economy while also artificially increasing the stock price.

It does the opposite. Buybacks send that money directly back into the economy to the shareholders that sold.

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

#156

Post by bilbo0s » Mon, Mar 30, 2020, 2:32 PM UTC

batmenace wrote: post #136

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…

Monstly agree - but dividends that go to every owner aren't unfair per se, a cap on dividends would be very good, though. As for options, depending on the company they can be a hiring incentive, and not being able to grant any may restrict the company going forward - has to be evaluated carefully.

>but dividends that go to every owner aren't unfair per se

If these companies are in such dire straits they need the infusion of cash provided by a government bailout, where did the money to pay dividends come from? Shouldn't they use that money to pay employees and fund their operations?

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

#157

Post by smaryjerry » Mon, Mar 30, 2020, 2:35 PM UTC

skewart wrote: post #133

ajsnigrutin wrote: post #34

Earlier quoted context omitted.

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…

> 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. A popular counter-argument is that governments should plan to spend money on unemployment relief for individuals if it looks like a lot of big companies won’t make it. Let companies fail but cushion the blow for people affected.

Unemployment relief is a temporary solution because people are usually single skilled. For example an airplane engineer doesn't easily get a new job in another industry.

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

#158

Post by jimbob45 » Mon, Mar 30, 2020, 2:43 PM UTC

smt88 wrote: post #72

sametmax wrote: post #58

Earlier quoted context omitted.

Investing is privatizing the risks and the benefits. Bailing out is privatizing the benefits but mutualizing the risks. It's taking what favors you from both capitalism and socialism, call that a free market, and pretend it's for the common good. You always win. People says communism didn't work looking at Russia and China. But the ruling class will abuse any system to the point it doesn't look like the original idea…

Communism and capitalism do share a weakness: corruption of those with power. One difference between them is that a dangerous concentration of power is inherent to communism. It's intentional. In capitalism, it's an unintended consequence that can be mitigated by regulations (anti-trust laws, subsidies to startups, etc.)

Communism and capitalism are economic systems, not governmental systems. You can have a dictatorial capitalist system. You can have a democratic capitalist system. You can have a dictatorial communist system. You can have a democratic communist system.

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

#159

Post by drdec » Mon, Mar 30, 2020, 2:45 PM UTC

WalterBright wrote: post #18

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.

It's not "stealing" from the market. All it does is increase the value of each share in proportion.

One aspect of this that the GP noted but has not been addressed, is the following. If you are an executive of the company you very likely have stock options which allow you to buy stock at a preferred (already set) price. Then you support a stock buyback, which inflates the price of the stock, making your options even more attractive. When you exercise the options, you purchase stock directly from the company and the difference essentially comes from the existing stockholders.

I wouldn't necessarily refer to this as "stealing" but it is a sneaky way to increase your compensation as an executive. It also causes a conflict of interest when a company is deciding whether to issue dividends or do a stock buyback.

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

#160

Post by greenshackle2 » Mon, Mar 30, 2020, 2:46 PM UTC

rorykoehler wrote: post #78

Havoc wrote: post #73

Could someone explain the sudden anger at share buybacks to me? Media seems to portray it as some sort of evil trick, but I don't see it. It's not that different from distributing divs

It's basically rent seeking behavior if you taking public money and then using it to enrich yourself with no benefit to the public. That money could be 1) saved for a rainy day (like now) so they won't have to ask the public for money or 2) reinvested in the company to generate more value. As it is it just sucks value from the economy while also artificially increasing the stock price.

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