Share Repurchases Losing Appeal in Cash Strapped Markets

Includes: C, FMCC, HD, NC
by: SA Eli Hoffmann

Share repurchases, once embraced by investors, are falling out of vogue as cash-strapped companies sometimes find themselves forced to sell on the cheap the same shares they recently retired at much higher prices in order to shore up their books, the Wall Street Journal reports. Share buybacks peaked in Q2 2007, when nonfinancial companies retired $192 billion of shares. Much of the money used to buy those shares was acquired through debt, which now weighs heavily on the companies' balance sheets. Standard & Poor's Nick Riccio says share buybacks and leveraged buyouts have lead to downgrades of "about a dozen" investment-grade companies, such as Home Depot (NYSE:HD), which went from A-plus to BBB-plus after it said it would finance $12 billion of a $22.5 billion share repurchase through debt (full story). Home Depot now says it believes it is "prudent to take a cautious stance with regard to the completion" of the program. Troubled mortgage-lender Freddie Mac (FRE), which may need a capital infusion of up to $6 billion (full story), and may consider a share sale, repurchased $1B of its common stock this year. Countrywide (CFC) spent $2.4 billion over the past year in share buybacks; recently it was forced to sell shares at depressed levels to raise money. Troubled bank Citigroup (NYSE:C) recently told investors it isn't in the position to repurchase shares. Notable exceptions include Target (NYSE:TGT), which upped its share repurchase program to $10 billion from $8 billion on Tuesday (full story), and Nacco Industries (NYSE:NC) ($750 million market cap), which announced this week a $100 million share buyback (Wall Street Journal).

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