7 ms·

Prediction: that won't be a precondition in the USA, and if it was, most companies would decline the aid. You see, buybacks are "that one weird trick" where yo

Prediction: that won't be a precondition in the USA, and if it was, most companies would decline the aid. You see, buybacks are "that one weird trick" where you can steal from the market, by inflating the EPS and hence your employee stock options, and not go to jail.

endorphone 7y ago
There is nothing weird or tricky about buybacks, and the mechanism is pretty obvious and intuitive. A company can issue new shares and raise money when they need it. A company can buyback shares when they have extra money they can't efficiently use (see: AAPL, MSFT, GOOG). There is absolutely nothing nefarious about this mechanism, and if tax treatments vary blame the government (don't hate the playa, etc). Buybacks are only a problem when cash-poor companies do buybacks. Either they're depleting a small contingency reserve, or they're even utilizing debt to do it.
- rax0m 7y ago
  It does become a problem if the company does buy-backs on the premise that they will get bailed out in the future should something unexpected occur. Too-big-to-fail companies can count on themselves getting bailed out which causes them to keep pumping their stock price without worries.
neximo64 7y ago
To play devil's advocate here, how is that any different from increasing your dividends?
- mcv 7y ago
  My guess would be that it directly increases the value of stock options and unvested equity, which dividends don't. Dividends are good for people who currently hold shares, but not for people who have shares promised to them in the future.
- bvrlt 7y ago
  You pay taxes on dividends.
  - mythz 7y ago
    You pay more taxes on dividends, you still pay taxes on Capital gains, just less.
    - jbverschoor 7y ago
      In the US yes, other places, that's not the case
      - sokoloff 7y ago
        In the US, qualified dividends (which is most of them) are taxed at long-term capital gains rates.
      - jbverschoor 7y ago
        Lol what idiots would downvote this... For exampe, in the Netherlands there are no capital gains tax. I think I'll delete my YC account, as it became a shit show
    - imtringued 7y ago
      In my opinion that is absolutely illogical because share prices can skyrocket even with weak fundamentals. Dividends should be taxed less because companies can't hype up their stocks to pay out a higher dividend (hype would actually decrease yields). Each dollar that is paid out as a dividend had to be earned by the company.
- pianom4n 7y ago
  It's exactly the same as a dividend, except the tax consequences are opt-in for shareholders. Only those who sell their shares are affected, unlike dividends which are equivalent to forcing all shareholders to sell an equal portion. Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math. In the article it says this rule applies to dividends, too. So at least it's not pure pandering.
  - patall 7y ago
    > Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math Or from people who do exactly realize this and have though through the math. I mean, its not like there is no reason why dividends tend to be taxed ...
    - sokoloff 7y ago
      So are LTGCs from the shareholders who sold. Someone is paying the capital gains tax; it’s just not the people who stayed invested.
      - disiplus 7y ago
        well, that's not how it should work or is intended. if my monthly paycheck is 13k eur before taxes and i live of 5k easily, i cannot say, take only 5k and pay taxes on that and for the other 8k give me stocks untaxed, and i will probably pay some tax when i sell the stocks (and different rules applay).
        sokoloff 7y ago
        This is exactly how pre-tax retirement account contributions work in the US (albeit with limits in the $15K-$56K/yr range, rather than ~$100K/yr).
  - dragonwriter 7y ago
    > Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math. No, a lot of it is from people who aren't too keen on capitalism or the means by which corporations return capital to the capitalist class in general, and particularly when it is “tax efficient”.
deleted 7y ago
[deleted]
mcv 7y ago
So US companies will take government money intended to rescue jobs and businesses, and instead use them for some quick profit for their shareholders and executives. I think those French conditions are entirely reasonable and sensible.
- londons_explore 7y ago
  ... use them for some quick profit for their shareholders and executives and rescue the business. One can't spend half the money and have one but not the other.
- endorphone 7y ago
  Zero companies receiving the bailout money are going to buy back stock with it. This whole charade is just a big feel good bit of nonsense for main street. What people are complaining about is that previously these companies did buy backs. Boeing did buybacks (when they were profitable, though they cancelled them when the 737 MAX disaster began). The airlines did buybacks. Etc. People are complaining that if these companies all sat on enormous war chests they wouldn't need help now. But that has never happened and will never happen like that because it would be ludicrously inefficient for the market at large.
  - donavanm 7y ago
    Don’t forget that the total free cash flow returned via buybacks and dividends wouldn’t have been enough even if they had chosen for inefficient allocation of capital.
pjc50 7y ago
I agree with the first sentence but not the second; buybacks aren't "stealing from the market", they're returning money to the market but "stealing" from the revenue service. The tax treatment of dividends is less favourable. Executive total compensation is a wider problem, but shareholders seems generally satisfied with letting boards have almost as much of the company money as they want. Only people who really take it too far like Carlos Ghosn get punished.
- gwd 7y ago
  > The tax treatment of dividends is less favourable. They changed this a while back, didn't they? "Qualified dividends, on the other hand, are taxed at the capital gains rates, which are lower." [1] AFAIK the only tax advantage of dividends now is that you're forced to pay tax every year, rather than being able to pay tax only once when you actually sell your shares. (Do let me know if there's something I'm missing.) [1] https://smartasset.com/taxes/dividend-tax-rate https://smartasset.com/taxes/dividend-tax-rate
  - CPLX 7y ago
    That difference makes for a BIG advantage it should be noted.
  - pjc50 7y ago
    Most of the shares are held by institutions, which have different capital gains rules; e.g. https://citywire.co.uk/investment-trust-insider/news/what-is-the-difference-between-investment-trusts-and-investment-companies/a1199743 https://citywire.co.uk/investment-trust-insider/news/what-is... UK investment trusts are exempt from CGT.
  - donavanm 7y ago
    It’s a big difference in practice. Dividends force a taxable event. The event may also force those dividends to be treated as income. The buyback increases the value of held assets. By choosing when to sell you can control the tax rate, the realize gains or losses, and time it in conjunction with other gains/losses to minimize the total tax burden. Those are very real opportunity costs.
WalterBright 7y ago
It's not "stealing" from the market. All it does is increase the value of each share in proportion.
- pedrocr 7y ago
  All else being equal it does not. Shares are worth the same as the company now has less shares but also less cash.
- eloisant 7y ago
  It's not stealing from the market, but it's essentially giving away money to shareholders by spending to inflate the stock price. In a way it's similar to dividends, but not taxes in the same way. Basically the logic behind the French government reasoning is "we're giving you money to support your business and your employees, not to give it away to shareholders". Note that this wasn't the initial plan of the French governement, initially the plan was to pose no conditions, just saying "please be responsible in your choice". It's after the public backlash that they finally put conditions.
  - sokoloff 7y ago
    Qualified dividends (most of them) are taxed the same way as long/term capital gains in the US.
  - ComputerGuru 7y ago
    Raising the value of a stock doesn’t make the shareholders money unless they sell their holdings (although it might incentivize doing that) as compared to dividends which encourage holding on to your investments so long as they pay out nicely. The real beneficiaries of buybacks are executives and employees with vested stocks. They both lose money on dividends and directly benefit from the contraction in available shares.
    - smolder 7y ago
      Dividends would also go up if there are fewer stocks and the same profit, no?
sametmax 7y ago
Don't worry, they will be plenty of exceptions and deals in France to bypass that after the fact. We just won't hear about it.
mrep 7y ago
No need to predict, that is a precondition for the US airline bailouts: "Airlines receiving aid will also be prohibited from buying back shares of their own stock for a year after the loan is fully paid off and bars them from issuing dividends to shareholders while receiving aid" [0]. [0]: https://www.businessinsider.com/airlines-coronavirus-bailout-senate-stock-buybacks-2020-3 https://www.businessinsider.com/airlines-coronavirus-bailout...
dehrmann 7y ago
I see buybacks just as an alternative to dividends. They do mean more valuable options, but I wouldn't call them "steal[ing] from the market" since they give shareholders more ownership of the company. I actually prefer buybacks to dividends because record keeping for DRIP can be messy, but more importantly, dividends are taxed as income, while gains from buybacks will see the lower capital gains rate (if you hold for a year). That's the real reason no actual shareholder seems to mind buybacks.

endorphone 7y ago

There is nothing weird or tricky about buybacks, and the mechanism is pretty obvious and intuitive. A company can issue new shares and raise money when they need it. A company can buyback shares when they have extra money they can't efficiently use (see: AAPL, MSFT, GOOG). There is absolutely nothing nefarious about this mechanism, and if tax treatments vary blame the government (don't hate the playa, etc). Buybacks are only a problem when cash-poor companies do buybacks. Either they're depleting a small contingency reserve, or they're even utilizing debt to do it.

rax0m 7y ago
It does become a problem if the company does buy-backs on the premise that they will get bailed out in the future should something unexpected occur. Too-big-to-fail companies can count on themselves getting bailed out which causes them to keep pumping their stock price without worries.

neximo64 7y ago

To play devil's advocate here, how is that any different from increasing your dividends?

mcv 7y ago
My guess would be that it directly increases the value of stock options and unvested equity, which dividends don't. Dividends are good for people who currently hold shares, but not for people who have shares promised to them in the future.
bvrlt 7y ago
You pay taxes on dividends.
- mythz 7y ago
  You pay more taxes on dividends, you still pay taxes on Capital gains, just less.
  - jbverschoor 7y ago
    In the US yes, other places, that's not the case
    - sokoloff 7y ago
      In the US, qualified dividends (which is most of them) are taxed at long-term capital gains rates.
    - jbverschoor 7y ago
      Lol what idiots would downvote this... For exampe, in the Netherlands there are no capital gains tax. I think I'll delete my YC account, as it became a shit show
  - imtringued 7y ago
    In my opinion that is absolutely illogical because share prices can skyrocket even with weak fundamentals. Dividends should be taxed less because companies can't hype up their stocks to pay out a higher dividend (hype would actually decrease yields). Each dollar that is paid out as a dividend had to be earned by the company.
pianom4n 7y ago
It's exactly the same as a dividend, except the tax consequences are opt-in for shareholders. Only those who sell their shares are affected, unlike dividends which are equivalent to forcing all shareholders to sell an equal portion. Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math. In the article it says this rule applies to dividends, too. So at least it's not pure pandering.
- patall 7y ago
  > Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math Or from people who do exactly realize this and have though through the math. I mean, its not like there is no reason why dividends tend to be taxed ...
  - sokoloff 7y ago
    So are LTGCs from the shareholders who sold. Someone is paying the capital gains tax; it’s just not the people who stayed invested.
    - disiplus 7y ago
      well, that's not how it should work or is intended. if my monthly paycheck is 13k eur before taxes and i live of 5k easily, i cannot say, take only 5k and pay taxes on that and for the other 8k give me stocks untaxed, and i will probably pay some tax when i sell the stocks (and different rules applay).
      - sokoloff 7y ago
        This is exactly how pre-tax retirement account contributions work in the US (albeit with limits in the $15K-$56K/yr range, rather than ~$100K/yr).
- dragonwriter 7y ago
  > Buybacks are just tax efficient dividends, and all of the hate against them is from people who don't realize this and haven't thought through the math. No, a lot of it is from people who aren't too keen on capitalism or the means by which corporations return capital to the capitalist class in general, and particularly when it is “tax efficient”.

deleted 7y ago

[deleted]

mcv 7y ago

So US companies will take government money intended to rescue jobs and businesses, and instead use them for some quick profit for their shareholders and executives. I think those French conditions are entirely reasonable and sensible.

londons_explore 7y ago
... use them for some quick profit for their shareholders and executives and rescue the business. One can't spend half the money and have one but not the other.
endorphone 7y ago
Zero companies receiving the bailout money are going to buy back stock with it. This whole charade is just a big feel good bit of nonsense for main street. What people are complaining about is that previously these companies did buy backs. Boeing did buybacks (when they were profitable, though they cancelled them when the 737 MAX disaster began). The airlines did buybacks. Etc. People are complaining that if these companies all sat on enormous war chests they wouldn't need help now. But that has never happened and will never happen like that because it would be ludicrously inefficient for the market at large.
- donavanm 7y ago
  Don’t forget that the total free cash flow returned via buybacks and dividends wouldn’t have been enough even if they had chosen for inefficient allocation of capital.

pjc50 7y ago

I agree with the first sentence but not the second; buybacks aren't "stealing from the market", they're returning money to the market but "stealing" from the revenue service. The tax treatment of dividends is less favourable. Executive total compensation is a wider problem, but shareholders seems generally satisfied with letting boards have almost as much of the company money as they want. Only people who really take it too far like Carlos Ghosn get punished.

gwd 7y ago
> The tax treatment of dividends is less favourable. They changed this a while back, didn't they? "Qualified dividends, on the other hand, are taxed at the capital gains rates, which are lower." [1] AFAIK the only tax advantage of dividends now is that you're forced to pay tax every year, rather than being able to pay tax only once when you actually sell your shares. (Do let me know if there's something I'm missing.) [1] https://smartasset.com/taxes/dividend-tax-rate https://smartasset.com/taxes/dividend-tax-rate
- CPLX 7y ago
  That difference makes for a BIG advantage it should be noted.
- pjc50 7y ago
  Most of the shares are held by institutions, which have different capital gains rules; e.g. https://citywire.co.uk/investment-trust-insider/news/what-is-the-difference-between-investment-trusts-and-investment-companies/a1199743 https://citywire.co.uk/investment-trust-insider/news/what-is... UK investment trusts are exempt from CGT.
- donavanm 7y ago
  It’s a big difference in practice. Dividends force a taxable event. The event may also force those dividends to be treated as income. The buyback increases the value of held assets. By choosing when to sell you can control the tax rate, the realize gains or losses, and time it in conjunction with other gains/losses to minimize the total tax burden. Those are very real opportunity costs.

WalterBright 7y ago

It's not "stealing" from the market. All it does is increase the value of each share in proportion.

pedrocr 7y ago
All else being equal it does not. Shares are worth the same as the company now has less shares but also less cash.
eloisant 7y ago
It's not stealing from the market, but it's essentially giving away money to shareholders by spending to inflate the stock price. In a way it's similar to dividends, but not taxes in the same way. Basically the logic behind the French government reasoning is "we're giving you money to support your business and your employees, not to give it away to shareholders". Note that this wasn't the initial plan of the French governement, initially the plan was to pose no conditions, just saying "please be responsible in your choice". It's after the public backlash that they finally put conditions.
- sokoloff 7y ago
  Qualified dividends (most of them) are taxed the same way as long/term capital gains in the US.
- ComputerGuru 7y ago
  Raising the value of a stock doesn’t make the shareholders money unless they sell their holdings (although it might incentivize doing that) as compared to dividends which encourage holding on to your investments so long as they pay out nicely. The real beneficiaries of buybacks are executives and employees with vested stocks. They both lose money on dividends and directly benefit from the contraction in available shares.
  - smolder 7y ago
    Dividends would also go up if there are fewer stocks and the same profit, no?

sametmax 7y ago

Don't worry, they will be plenty of exceptions and deals in France to bypass that after the fact. We just won't hear about it.

mrep 7y ago

No need to predict, that is a precondition for the US airline bailouts: "Airlines receiving aid will also be prohibited from buying back shares of their own stock for a year after the loan is fully paid off and bars them from issuing dividends to shareholders while receiving aid" [0]. [0]: https://www.businessinsider.com/airlines-coronavirus-bailout-senate-stock-buybacks-2020-3 https://www.businessinsider.com/airlines-coronavirus-bailout...

dehrmann 7y ago

I see buybacks just as an alternative to dividends. They do mean more valuable options, but I wouldn't call them "steal[ing] from the market" since they give shareholders more ownership of the company. I actually prefer buybacks to dividends because record keeping for DRIP can be messy, but more importantly, dividends are taxed as income, while gains from buybacks will see the lower capital gains rate (if you hold for a year). That's the real reason no actual shareholder seems to mind buybacks.