While buying in stock when it is cheap may be a sensible use of capital, repurchasing shares when they are trading at sky-high valuations, as many companies have done, seems downright dumb.
Mr Bralver believes that the dispersal of capital, either through dividends or repurchases of shares, will only increase over the next six to 12 months as all but the most highly valued banks pare back to sustain high returns on retained capital.As with other companies, if banks cannot use shareholders' money sufficiently profitably, it makes sense to pay higher dividends.
Before the recent crisis, "many bank holding companies made significant distributions of capital, in the form of stock repurchases and dividends, without due consideration of the effects that a prolonged economic downturn could have on their capital adequacy," the Fed said in its proposed rule.
But the same amount of money paid to investors in share repurchases would generate much less taxable income, because some portion of the money would be viewed as a return of capital.
The shares are also non-dilutive to existing shareholders and the bank will not have to pay a premium to repurchase the capital.
Criterion Research, a financial statement analysis firm in New York City, defines cash earnings as operating cash flow plus the effect of investments like capital expenditures and acquisitions (such as the repurchase of franchise agreements by Krispy Kreme).
Due to the suspension of its share repurchase program, lower capital spending, and inventory and expense control, Macys said its need for cash has been reduced and its year-to-date cash flow is stronger than it had anticipated.
It approved the repurchase of $1 billion during the first quarter.
The move might not have been necessary had Netflix not authorized a share repurchase of $300 million in August of 2009, and another $300 million repurchase in June of 2010.
