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Share buyback investments purchases as a failure

Never before company have invested in the USA, so a lot of money to own shares the buy-back, as in the last year. About $ 900 billion in the stock index S & P 500 companies included are likely to have spent, according to estimates by the banks for this purpose. 2017 and 2016, amounted to the share repurchases amounted to 550, respectively, 529 billion dollars.

in the light of recent price declines on the stock exchanges and the repurchases, from today's perspective as a bad investment are: The companies have destroyed value. The highest loss suffered by the companies with the largest buyback program: Apple.

Almost 63 billion dollars spent by the iPhone maker in the first nine months of 2018 for the purchase of its own shares, such as the Wall Street Journal calculated. Shortly after Christmas, he would have had to for this package of shares 9.1 billion less to interpret, and since then, the Apple fell through papers even deeper in the basement Gera.

Often, the wrong time

repurchases of own shares are also popular with Swiss companies. Adecco, Credit Suisse, Lindt & Sprüngli, Nestlé, Novartis, Sonova, Swatch, Swiss Life, Swiss Re and UBS have all announced programs or already up and Running. Whether you represent a point of view of returns worthwhile investment, due to the lack of data is not assessed. Doubtful: but the repurchases after a nine-year period of rising stock prices – at a time when the stock exchange quotes – if you are not as likely to be overpriced, but close to the upper Limit.

"share repurchases are often made at the wrong time," says the Analyst from a Swiss Bank, who asked to remain anonymous. "You are a prozyklisches phenomenon." Want to be called: shares are primarily recorded in purchased in good stock market times, mostly towards the end of the cycle, if companies achieve high margins, great cash flows and investment needs are predominantly covered. "Filled the coffers bulging, lose sensitivity to the companies, their Price, and it comes to failed investments," adds the Analyst.

for these reasons, it would be, in his view, goal-oriented, even – and especially from a shareholder's point of view, they would distribute their excess cash as dividends. Ideally, there should be payouts are rule-based and less in the discretion of the management, to discipline this way. For example, it could be specified that 80 percent of the free resources available to the shareholders as a dividend.

Jan Widmer, Fund Manager at St. Galler Kantonalbank, agrees that Aktienrückäufe behaviour Pro-cyclical: "In an economic slowdown and, correspondingly, the lower Gain of such programmes shall be suspended." However, Widmer repurchases thinks is a good thing: "your primary goal is, surplus funds of the company to the shareholders to repay." The Price of a share of the games in the case of repurchases of a subordinate role, because the purchased shares would then be destroyed.

For the Benefit of shareholders

Also, Philipp Lienhardt, head of equity research at Bank Julius Baer, which measures the stock market over the course of secondary importance for the evaluation of reinsurance programs to purchase. "There is no meaningful investment opportunities for companies, it makes sense to the shareholders, for example in the Form of share repurchases," says Lienhardt. From his appearance repurchases are positive if two conditions are met: they have to be financed from the generated funds of the company not using debt, and the company must be able to make the necessary investments in the future.

Jan Widmer emphasizes further the purpose for which the repurchased shares as a Central criterion. "Is launched a program to destroy the stocks that benefit the shareholders," says the Fund Manager. Reason: The number of shares outstanding decreases, accordingly, increases the profit per share. Experts speak of "gain compression".

companies buy shares to hold in Treasury. It was, in order to Finance a Takeover or to transmit the papers in the context of a participation program to employees. In this case, no profit is held in compression.

The Swiss Life intends about to buy back own shares, in order to, among other things, a dilution of Capital through a convertible bond balance. Convertible bonds entitle the owners of bonds in stock exchange. As a result, the number of shares outstanding is on the rise – it comes to the opposite of the gain compression, and this will avoid purchases of the life insurer with the Return.

in Whole, the situation is different in the case of FIG: Through the sale of its electricity network, the group will flow to division about $ 7.5 billion. These funds are to be handed out to shareholders, most likely via a share buyback.

Mario Greco, chief of the Zurich Insurance Group has revealed himself, however, as a vehement opponent of such programs. "I myself do not like share buybacks at all," he said last October, "Finance and economy". "That would be a use of funds that drives the share price for a Moment, but only a short lasting effect."


Created: 05.01.2019, 13:50 PM

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