Warren Buffett agreesAn article was posted on this website on 20th November 2008 called "The ludicrous practice of the share buy-back". Now, in early May 09, the Sage of Omaha has said more or less the same. Speaking at the AGM of his investment vehicle Berkshire Hathaway, Mr Buffett said "Most of the repurchasing in recent years was foolish".
In the article of November last, I gave two examples of money-wasting buy-back decisions namely the building society Alliance & Leicester and the bank HBOS. Now on the back of this story from Omaha, the Daily Telegraph has come up with further examples. RBS launched a £1bn share buy-back in 2006 paying an average of £18.38 for the shares. These shares are now 44p. In January 2008, Lehman Brothers bought back 19% of its equity, nine months before it went bust.
The UK Shareholders’ Association (UKSA) is on record as believing that the dividend route is the preferred way of returning cash to shareholders. As was stated back in November, buy-backs are criticised as a way to improve management benefits under share option or other remuneration schemes attached to earnings per share (less shares equal more earnings each).
jgs- 2009
