INSIDERS AREN’T THE ONLY ONES BOYCOTTING THEIR OWN SHARES
Courtesy of The Pragmatic Capitalist
Insiders aren’t the only ones who aren’t buying their own shares. According to S&P U.S. corporations have reduced buybacks of their own shares to levels that haven’t been seen since 1998. Bloomberg reports:
U.S. companies spent the least on share buybacks in the second quarter since at least 1998, S&P said, as the recession crimped earnings.Standard & Poor’s 500 Index companies paid $24.2 billion to repurchase shares, a 72 percent decline from the $87.9 billion they spent a year earlier and 86 percent less than the record $172 billion in the third quarter of 2007. That’s the least since S&P began tracking the trend in 1998, the New York-based research and credit rating firm said. In the second quarter, 169 companies bought back stock, compared with 288 a year earlier.
The worst recession in seven decades convinced companies to stop buying back shares even after valuations fell to their lowest level in two decades, according to data compiled by Bloomberg. Executives use repurchases to lower the amount of outstanding shares and increase stockholders’ stake in profits.
“Weak economies, poor growth prospects, the credit crunch, all of those factors that pushed stock prices down were also impacting revenue, and cash on hand, and all the things needed to repurchase shares,” said James Gaul, a money manager at Boston Advisors LLC in Boston, which oversees $1.5 billion. “In a situation where you’re really strapped for day-to-day expenses, you’re not going to be buying back stock.”
The collapse of the subprime mortgage market spurred $1.6 trillion in bank losses and writedowns worldwide, dragged the U.S., Europe and Japan into the first simultaneous recession since World War II and froze credit markets.
Buybacks Drop
The decline in share buybacks came after the S&P 500 fell to its lowest price relative to profits in 24 years in March. The index traded at an average price-earnings ratio of 14.2 in the second quarter, compared with 16.9 a year earlier and 16.6 in the third quarter of 2007.
Companies in the S&P 500 hoarded cash in the second quarter to weather a record eighth consecutive decrease in quarterly profit. They held a combined $1.06 trillion in cash in the period, 21 percent more than a year earlier and 29 percent more than the in the third quarter of 2007, according to Bloomberg data.
“Corporations continue to build up cash reserves to ride them through, and out of, the recession,” Howard Silverblatt, S&P’s senior index analyst in New York, said in a statement…
Source: Bloomberg [S&P 500 Stock Buybacks Drop to Low in Second Quarter ]
