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.