"So, in the name of enhancing shareholder value, Ambac and MBIA respectively spent $1,015,036,000 and $1,843,044,000 worth of cash for stock buybacks (over the past seven years). But, and now you know this, such cash expenditures reduced liquidity and net worth by those exact amounts. How can this be deemed responsible behavior when both companies are expressly in the business of insuring bonds and providing financial guarantees?" asks Eric Englund.
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Posted by , Feb 06, 2008 10:24AM
I dont even know where to start with this! This guy clearly has no understanding of how the business even works. He is saying that monolines PUT the aaa ratings on securities? And the citing that rating agency is reviewing to downgrade the bonds as proof that the MONOLINE is wrong? Great Odin's Raven someone needs to give this guy a tutorial in what these companies' respective roles are in the market.
John please just do us a favor and remove this post entirely, my grandmother could write a more accurate account of what is going on right now
Posted by , Feb 06, 2008 10:27AM
is it really necessary to litter DB with completely inaccurate rants by ron paul nuts?
Posted by , Feb 06, 2008 10:28AM
They made a bad decision, for more on that see "Business Judgement Rule".
I don't know who the hell Eric Englund is but I can't wait to dive into the highly regarded work he published "The Hyperinflation Survival Guide".
Posted by , Feb 06, 2008 10:31AM
I'm a generally egalitarian guy but come on, this guy has an MBA from Boise State University? wtf? Is that where they teach you how to market Idaho potatos? Fucktard. He's not doing any benefit to the credibility of other alumni of farming MBA programs.
Posted by , Feb 06, 2008 10:38AM
Eric, the firms clearly concluded at the time that the amounts spent on stock buybacks represented excess capital that was better returned to shareholders. That's finance 101. As it turned out, it was NOT excess and could have come in handy today. But as 10:28 points out, that's means bad decision, not irresponsible behavior.
Posted by , Feb 06, 2008 10:59AM
Monolines have nothing to do with assigning ratings! Monolines insure bonds, then ratings agencies assign ratings based on the claims paying strength of the insurance company. A monoline insuring a bond is making no representation whatsoever as to the underlying collateral strength. This guy has no idea what he's talking about. NO IDEA!
Posted by Anonymous , Feb 06, 2008 11:07AM
HE KNOWS NOTHING!
Posted by series7.5 , Feb 06, 2008 11:15AM
I agree, in chronological order, with every comment from 10:24 to 11:07, inclusive
Posted by Finn , Feb 06, 2008 11:27AM
Does he actually state that monolines set their own ratings?
And one could agree with the general point that buybacks generally presume a knowledge of the future (as being peachy) that is often unknowable.
Posted by , Feb 06, 2008 11:40AM
Finn: You're wrong re buybacks. A buyback, like dividends, is simply a way of returning profits to the owners of the company. Its a simple issue: is there more capital here than we need. The buyback becomes the tool for putting in place what's been deemed to be the most appropriate capital structure.
You seem to imply that this issue should be avoided because there is uncertainty about the future. Aren't all business decisions made though in the face of uncertainty?
Posted by , Feb 06, 2008 11:44AM
Finn yes, just read the second paragraph
Posted by Anal_yst , Feb 06, 2008 11:59AM
I'm often amazed that massive stock buy-backs represent the highest npv use of $, or that by some other metric or logic there is not a more effective way to increase shareholder value, and, it seems that similarly often, its a way to appease large/activist shareholders and get management some breathing room (read: keep them in their cushy jobs).
Of course in situations like this, hindsight, aye, she is a bitch.
Posted by , Feb 06, 2008 12:07PM
Actually, analysts encourage buybacks, since they almost always boost EPS. A more subtle benefit is that they prevent management from pissing money away on M&A, the success rate of which for most companies is really poor. The downside is that repurchase is a low growth strategy. But most companies have an overly high assessment of their growth capabilities anyway. I'm sure that none of this is anything that you;ve not heard before.
Posted by Anal_yst , Feb 06, 2008 12:13PM
@ 12:07
of course nothing new, and stupid m&a goes along with the myriad other stupid and short-sighted uses of capital, overly-optimistic growth projections, etc. Of course, the answer is innovation, blah blah, butt as we know thats a totally different discussion
Posted by , Feb 06, 2008 1:10PM
I think he means "bestow a AAA rating" as in to insure the debt, allowing Moody's et al to bestow said rating. Not a well written sentence, but thats not the point of the article.
Posted by s75 , Feb 06, 2008 2:05PM
In the case of monoline insurers in particular, just look at what the options were for the past whatever 5 years or so, the spreads on traditional business were just awful, the options were basically do nothing, buy back stock, or do even mor aggressive subprime home credit business than they actually did, buying back stock is the most rational choice there i would argue at the time
Posted by gab , Feb 06, 2008 2:11PM
Clearly, s75, (and, I admit, this is 20-20 hindsight) "do nothing" would have been the most rational choice.
Posted by , Feb 06, 2008 2:15PM
gab: How could do nothing have been the most rational choice if you're able to justify it only with the benefit of hindsight. I hope that they're keeping you far away from clients.
Posted by s75 , Feb 06, 2008 2:28PM
@2:11, hard to say, but management probably would have got tossed long before now if it just dug in and said "we are putting your money to sleep for the next 5 years. just trust us"
Posted by tyro , Feb 06, 2008 4:19PM
"finance 101 ..not irresponsible"
$400M in AMBAC buybacks were done with DISCS (Directly Issued Subordinated Capital Securities), read that debt, not "excess capital". MS then increased the price target for ABK. Dir Lassiter and CEO Genader dumped shares after MS new target, combined to the tune of $20M, such was their future confidence! Responsible? Yeah, right.