Personal Interests Influence Buybacks

Corporate boards of directors generally have described the recent wave of stock repurchases as good investments that will buoy their company’s stock while other firms founder. Those repurchases can also boost per-share earnings, “if there’s a low enough multiple,” according to Irving Katz, director of research for San Diego Securities, which last week was acquired by Los Angeles-based Thomas Green & Associates.

But there are other, more personal reasons that directors weigh when considering a stock repurchase, Katz said.

A stock buyback might help the executive who runs into trouble after the value of company stock used as collateral for a loan tumbles. “It’s important (to executives) that the equity value of their stock not get down to the point where the loan is threatened,” Katz said.

Boards that authorize repurchases at bargain-basement prices might be hoping to “protect stock options that (executives) exercised recently at higher prices,” Katz said. Many executives who use borrowed money to buy stocks anticipate that profits will cover the loan costs, Katz said.

Those personal reasons probably won’t be strong enough by themselves to bring about a stock repurchase program, but “they are going to influence boards,” Katz said.