If Leveraged Buybacks, Why Not Leveraged Dividends? / Kasriel
Kasriel from Northern Trust asks the right question. The management will be forced to do more "bondholder value" management. I recommend to read the Expedia story to see how the sentiment has collapsed within 3 weeks.
Kasriel stellt hier eindeutig die richtige Frage. Das Management wird sich zukünftig wohl immer mehr um die Belange der Anleihebesitzer kümmern müssen. Ein gutes Beispiel wie schnell die Stimmung gekippt kann man am Beispiel von Expedia sehen.
The equity investing community seems to get giddy when it hears the words "stock buyback." And why not if the stock is being bought back out of current profits? But what if the corporation is increasing its debt to fund its stock buybacks?
The chart below suggests that is what is occurring now and what occurred in the late 1980s and late 1990s. The red bars in the chart represent the dollar amount of the net issuance of equities of nonfinancial corporations. Readings below zero, which predominate, signify the net "retirement" of equities. As the chart shows, record amounts of nonfinancial corporate equities are being retired in this cycle. The blue line in the chart represents nonfinancial corporate borrowing as a percent of their nominal capital spending. If the percentage is rising, as it is now, then this indicates corporations are borrowing for purposes other than to fund their capital spending. If corporate borrowing is rising relative to capital spending and corporations are retiring equity, then it is likely that they are borrowing to fund their share buybacks.
Equity investors do not seem alarmed that corporations are leveraging themselves to fund stock buybacks. Would corporate borrowing to increase dividend payments be greeted equally as gleefully?
As an aside, with some risk starting to be priced into the credit market, funding stock buybacks via borrowing is getting more expensive. Ask Expedia . It recently had plans to buyback 42% of its shares, predominantly with borrowed funds. But with the credit markets having turned more discriminating in recent weeks, Expedia has scaled back its repurchase plan to only 8% of its shares.
Kasriel stellt hier eindeutig die richtige Frage. Das Management wird sich zukünftig wohl immer mehr um die Belange der Anleihebesitzer kümmern müssen. Ein gutes Beispiel wie schnell die Stimmung gekippt kann man am Beispiel von Expedia sehen.
The equity investing community seems to get giddy when it hears the words "stock buyback." And why not if the stock is being bought back out of current profits? But what if the corporation is increasing its debt to fund its stock buybacks?The chart below suggests that is what is occurring now and what occurred in the late 1980s and late 1990s. The red bars in the chart represent the dollar amount of the net issuance of equities of nonfinancial corporations. Readings below zero, which predominate, signify the net "retirement" of equities. As the chart shows, record amounts of nonfinancial corporate equities are being retired in this cycle. The blue line in the chart represents nonfinancial corporate borrowing as a percent of their nominal capital spending. If the percentage is rising, as it is now, then this indicates corporations are borrowing for purposes other than to fund their capital spending. If corporate borrowing is rising relative to capital spending and corporations are retiring equity, then it is likely that they are borrowing to fund their share buybacks.
Equity investors do not seem alarmed that corporations are leveraging themselves to fund stock buybacks. Would corporate borrowing to increase dividend payments be greeted equally as gleefully?As an aside, with some risk starting to be priced into the credit market, funding stock buybacks via borrowing is getting more expensive. Ask Expedia . It recently had plans to buyback 42% of its shares, predominantly with borrowed funds. But with the credit markets having turned more discriminating in recent weeks, Expedia has scaled back its repurchase plan to only 8% of its shares.
Labels: bondholder value management, capital spending, investor sentiment, junk, kasriel, risk aversion, spreads, stock buybacks
posted by jmf at 12:00 AM
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kann diese einschätzung nur bestätigen. in nahezu jedem call oder veröffentlichung hat das management versucht schlechte ergebnisse durch massive (ofte auf pump) aktienrückkäufe zu verschleiern. etliche von denen sind keine 3 bis 6 monate später in großen problemen oder gar pleite. die betrachtung der s&p statistik macht das ganze nicht gerade gemütlicher.....ausserdem verkauft das management in gleicher zeit in rekordtempo eigene aktien/optionen.....besonders bedenklich wird es wenn das management auf pump aktien zurückkauft und dadurch sogar die unmittelbare herunterstufung de kreditwürdigkeit achselzuckend in kauf nimmt. 
The biggest buyer is the corporate sector itself. According to Tim Bond, of Barclays Capital, American companies acquired (via takeovers and buy-backs) some $602 billion of shares last year. In the fourth quarter, the pace of purchases was running at an annualised rate of 6% of the entire market. April 23rd was the biggest day for takeover announcements since the AOL/Time Warner deal of January 2000 and the following day saw IBM announce a $15 billion buy-back. With that kind of support, it is hardly surprising that investors can shrug off economic and geopolitical concerns and push the Dow Jones industrials to a new record above 13,000, as they did on April 25th.
Despite good results so far, HSBC says forecasts for 2007 earnings per share for S&P 500 companies have edged down from $95 in the middle of last year to less than $93 today. And Dave Rosenberg, a Merrill Lynch economist, says that, over the past six months, business sales have fallen at an annual rate of 2.3%. 
