At Goldman Sachs, Stress Test Results Could Endanger an Important Profit Source
Source: NY Times
By NATHANIEL POPPER
Concerns have emerged that Goldman Sachs — long the leader on Wall Street — may lose an important engine of profitability.
On the Federal Reserve stress tests last week, Goldman performed poorly compared with other big banks. Now analysts and investors are worried that the bank could be barred by regulators from buying back its own stock or increasing dividends.
Goldman has used dividends and share buybacks to appeal to investors at a time when other elements of the bank’s business have faced challenges. When companies buy shares of their own stock on the open market, it generally increases the amount of profits attributed to every share, an important metric for investors.
Several analysts have released research questioning whether the Federal Reserve would allow Goldman to continue its buyback programs given the results of the stress tests. Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods, estimated that if Goldman is unable to repurchase shares, it could earn 42 cents a share less than expected this year, and $1.78 a share less than expected next year.
FULL story at link.
Read more: http://www.nytimes.com/2015/03/09/business/dealbook/at-goldman-sachs-stress-test-results-could-endanger-an-important-profit-source.html?ref=business
I had a post 2 weeks ago about how stock buy backs hurt workers & wages. Many people didn't get the point.
OS
http://www.pbs.org/newshour/making-sense/middle-class-cant-get-ahead/
U.S. corporations have increasingly resorted to stock buybacks to prop up share prices. According to a report in the Harvard Business Review by professor William Lazonkick—“Profits Without Prosperity”—over the past 10 years, America’s largest companies, those making up the S&P 500, have devoted a staggering 54 percent of their profits to buying back shares, reducing the total number outstanding and thus increasing the value of the remaining shares owned by capitalists like me.
A stock buyback, in case you are wondering, is when a public company buys its own shares. “Why on earth would a company do that?” you ask. To push the stock price higher, of course—which benefits senior managers who are all paid in stock—rather than, say, investing in R&D or in building new factories. Or paying you overtime for all those extra hours you work.
I want to be clear: I’ve done stock buybacks. We all do it. In order to be a public company today, you practically can’t avoid it, despite how obviously corrupt it is. Ever wonder why the stock market is soaring again, while the real economy is just slogging along? Buybacks are a big reason. According to data compiled by Mustafa Erdem Sakinç of The Academic-Industry Research Network, public U.S. corporations of all sizes have spent an astonishing $6.9 trillion on stock buybacks over the past decade alone. $6.9 trillion! That’s about enough to run the entire federal government—for two years! Let me tell you how it works. Your institutional investors will call you, maybe after some bad news that drives your stock down a bit, and they’ll say, “Hey, your stock is undervalued, don’t you think? And if you guys won’t support your own stock, then why should we?” Hint, hint. Nudge, nudge. But you will not be able to grasp the size of this, relative to your situation, without some examples.
Take low-wage king Wal-Mart. Over the past 10 years, according to data compiled from its public filings, Wal-Mart has spent more than $65.4 billion on stock buybacks—about 47 percent of its profits. That’s an average of more than $6.5 billion a year in stock buybacks, enough to give each of its 1.4 million U.S. workers a $4,670-a-year raise. It is also, coincidentally, an amount roughly equivalent to the estimated $6.2 billion Wal-Mart costs U.S. taxpayers every year in food stamps, Medicaid, subsidized housing and other public assistance to its many impoverished employees.
MUCH more at link.
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