stonebluff

Why Stock Buybacks Are Not Always a Good Thing

Buybacks by financial companies at prices above real tangible book should be outlawed. NCC was in substanial part wrecked by buying back its shares at 38 when tangible book was less than half that. Buybacks make sense for shareholders only when assets underlying shares, e.g.,oil in the ground, are worth more than the stock price. The cleanest example of a good buyback is purchase of its own shares by a closed end fund whose shares are selliing at a discount to the known market value of its underlying assets. All others are at least suspect. National banks for many years could not buy their own shares without consent of the Comptroller of the Currency (I don't know the current state of the law) and many state incorporation statutes used to bar buybacks, for the reason that they carry all the stale fish odors mentioned above and may reek of outright corruption.












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