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LLOY - Share buyback 2019

lse:lloy

#422

I am very shortsighted when it comes to buybacks. I prefer a special dividend unless the company is seriously undervalued by the market.

Can you explain the ‘sustainability aspect’? I know there are some deep accounting reasons for buybacks that I don’t fully grasp.

One reason I don’t grasp them is they tend to not have any obvious or provable advantage to shareholders - unlike a special dividend which is cash in hand.


#423

Sinister in me here

Buy back is suspended and share price goes up

Hahahaha


#424

Hi @regardless, Wow LLOY up 4%+ today, flying for sure !.

Just had to pop back to congratulate you

£££££££££££

ATB

Pref

PS No plans to return to posting here, but couldn’t resist this one.


#425

Up to nearly 52p today regardless.

Don’t know whether to laugh or cry.

And a divi on Friday!


#426

Yes, those of us who reinvest the divis could have done with the sp rise being delayed a week or so. Mind you, a 4% rise is a bit exhuberant in these uncertain times I think.

Frog in a tree


#427

Hi Eadwig, I’ve copied my below post from another thread, but essentially it’s about maintaining or reducing the numbers of shares over time.

If there were no share buy backs, then the number of shares in circulation would be much higher. If there were twice as many shares, then it’d be silly to expect the price per share to be the same as it is today. Equally so, if there were twice as many shares, then the dividend would be half the value.

Share buybacks are here to ensure the sustainability of the company; because of this, they do benefit the share holders over a period of time.

If instead of share buy backs they distributed a special dividend, this dividend would become smaller and smaller each year as the number of shares in circulation would increase exponentially. (More shares means lower price which means more shares created for pensions which means more dilution which means lower share price…)


#428

Or they could stop issuing bonus shares like candy and pay the wages whilst submitting realistic accounts instead of the cloak n dagger illusionist situation we currently suffer.


#429

It’s a pension incentive for the employees - I wish more companies did this!


#430

Exactly… Here, here


#431

@swamp_rat,

Indeed, questionable bonuses are an industry-wide issue. For example, CNA’s CEO, Conn, recently enjoyed a huge increase in bonuses despite overseeing a disastrous performance in SP.

For banks like LLOY, I know in 2010 the government imposed a strict cap on all employee cash bonuses. That cap was restricted to £2,000. LLOY chose to maintain that £2K cap since becoming 100% independent again. That was reported in 2018 & confirmed in their annual reports in 2019.

https://news.sky.com/story/lloyds-keeps-cash-bonus-cap-despite-return-to-private-ownership-11211245

But even when the cap is lifted, the core issue of bonus payments remains. If bonuses weren’t granted via shares, LLOY would still have to stump up significant extra money to cover existing bonus contracts for their staff. Where would that money come from? Possibly from surplus funds used for dividend payments?

In the circumstances, LLOY’s share buyback program protects against further dilution in value. Presumably, it’ll be resumed as soon as the recent increase in PPI payments are met. - Regards.


#432

The Annual Report contains a long (56 pages) and complete explanation on the Governance of the Company, which includes all relevant details of the composition of the Director’s remuneration (including bonuses). This shows that the Director’s did not receive all the bonus shares they were potentially set to receive since the relevant allotment criteria were not met. This also shows how the Director’s pay has changed with relation to the pay of other employees.

I have no doubt that there are many aspects which one can take issue with, but this will of course depend on one’s political alignment and one’s view of the veracity of the statements made.

It is worth a read anyway, since it does show that the situation concerning bonuses is far more complex than many try to suggest. If all Director’s were just paid a fixed salary there would be little incentive for them to work hard to improve the overall Company performance. Currently if they were to achieve a 100% bonus allocation they would receive a considerable uplift in their incomes.

It is also worth reading the same section from previous Annual Reports, since these show that there have been significantly lower allocation levels in the past. All the Reports are easily accessible from the LLOY website.


#433

@mcgrimes

Thanks for the reply. I’m afraid I don’t buy it and here’s why …

Why? They don’t have to issue SCRIP shares or any other type of share, this is entirely within the control of the board.

Same again - the shares would NOT increase (and certainly not exponentially!) unless the board chooses to issue a SCRIP. Investors can still re-invest via a DRIP if they choose, which doesn’t require any new stock whatsoever.

As for giving out shares for pension schemes and employee benefit schemes etc etc - again, entirely under the control of the board AND a silly idea that bankers of all people shouldn’t go for. Talk about putting all your eggs in one basket! If the bank were to go out of business, the employee loses their job, their pension and their savings if they are in the form of stock.

Ask Northern Rock employees how this kind of ownership worked out for them …

The argument that buybacks make a company sustainable is just as easily refuted, to wit: How did companies survive for the centuries when share buybacks were illegal?

There are arguments for share buybacks as I said, but these aren’t them, and I they are so esoteric that I really don’t understand them, on the whole.

The only time a company should buyback its own shares is when the board truly believe that

a) the company is undervalued by the market

b) they are totally out of ideas on how to put shareholder’s capital to work to earn more profits.

If b) is the case then you either need a new board or a special dividend should be paid before the board dreams up some way to spend the ‘excess’ cash, probably on some sort of massively under-researched buy-out of another bank, judging by past performance.

IMHO,

Eadwig


#434

Buybacks are ideal for clouding accounting issues because you can never be sure just how much ‘value they are returning to shareholders’.

The one thing you CAN be certain of is that the value can only be realised by the shareholder by selling the stock - unless we’re going with the argument that the dividend has to be divided amongst fewer shareholders. I think the latter argument is pretty spurious because it all depends on how the dividend is worked out.

There is nothing whatsoever stopping a board from basing the dividend entirely on an amount per share based on previous payouts, in fact this is how most companies do arrive at their dividend amount. Very few companies have a fixed amount formula that is then divided between how ever many shares happen to be in issue at the time.

If they did they you would see company dividends fluctuating up and down every year rather than the accepted best case scenario of a percentage rise each year which is trumpeted in the final accounts and hopefully comfortably ‘covered’ if it is a well managed company.

Then of course if they had a bad year there would be no payout at all - and the headlines would all be about a dividend cut. Most boards avoid this like the plague, until it becomes absolutely necessary then they kitchen sink it.

No, I can’t buy the ‘more dividends’ between fewer holders argument. Its B.S.


#435

Did you honestly just state that pension schemes were an employee can invest in the company shouldn’t be allowed? The employees of a company are a massive stakeholder.

Your point is flawed, the company do create shares and therefore the share buyback is necessary to limit the shares in circulation.

Your desire for a special dividend is purely selfish - you should be a politician.


#436

As per my original Point, it’s because you’re shortsighted and refuse to look beyond maximising your return. This isn’t a negative criticism, who doesn’t want to maximise returns?

But, Lloyds do offer employee benefits, and therefore need to limit the shares in circulation. This is fact, run the numbers and you’ll understand.


#437

Eadwig, I think you have your work cutout here…some shareholders are blind to dilution…and have been for sometime.


#438

I was talking generally about buybacks, but my points apply to Lloyds 100%.

I think I’ve shown your points with regards to buybacks are the ones that are flawed. It is you who are thinking like a politician, I’m afraid.

Politicians that came up with the term ‘stakeholder’ that you are throwing about so much. Also it was fashionable among politicians for a while to encourage employee stock ownership as though this was some kind of motivator when any first term business student will explain to you why it isn’t.

Unfortunately we also now have tens of thousands of examples of everyday working folk who have fallen into the ‘stakeholder’ trap when the business they work for has gone under. A trap that the tax payer ends up picking up the bill for ultimately.

You appear to be an investor who is blind to the importance of diversification and would encourage people to put their life savings, their pensions and their careers in the same investment basket. You need to wake up to what a potential disaster that is if you are in the same position.

You wouldn’t find the CEO of any FTSE 100 company doing the same. Or any financial advisor telling you that it is a good thing to do. It has nothing to do with maximising my investment in a company. Its common sense.

Lloyds may offer employee benefits, that’s fine. Why do they have to offer shares? thousands of companies offer benefits to employees without basing it on their own shares. It may be appropriate in some dynamic start-up companies for some employees.

Lloyds doesn’t fit the bill. There is something obscene about the way banks issue share capital endlessly to pay various bills and benefits. HSBA offers a SCRIP scheme for which they issue new shares every quarter (I have no idea about LLOY).

There is something very fishy about it. Buybacks fir in the same category for me.


#439

I’m certain you’re intentionally trolling so I’ll ignore you.


#440

Well, let’s see how many people agree with my assessment and how many yours.

If you happen to be a LLoyds (or similar) employee with your whole future prosperity tied to one company - one that has spent the last decade repaying a government bail-out and proceeds from criminal activities and working to reduces its size enough so that it can be allowed to fail in future - then I urge you to grasp the idea of diversity in investments and take steps to safe-guard your future.

In exactly the same way and spirit I continually urge @regardless to diversify his investments instead of betting his whole retirement plan on a single company. Its a ridiculous risk.

If that’s ‘trolling’ then expect more of it. To me it is sound, basic principles of investment.


#441

Hi Fiat,

Though as a holder I naturally welcome any rise in SP, indeed I had the same thought when you posted the above. :slight_smile: However, with dividends paid tomorrow & LLOY falling back today, possibly those of us using the DRIP option won’t do that badly out of it after all. - Regards.