Lloyd's bank share buy back commences...

veryintrigued

Will this be the trigger for a shift in the share price?

Is this buy back mechanism widely used?

bowlhead99

It is not uncommon for a company which has more capital than it needs, to return it by buying back its own shares and cancelling them.

This can have the effect of improving the share price because for the duration of the buy-back program there is another buyer in the market - a billion pounds available from Lloyds itself will create more demand to take shares off people's hands if people are looking to exit. All the sellers can get matched with buyers because there's a big buyer.

Some people are cynical about buybacks but ultimately the company is more valuable, per share in issue, if it has a greater proportion of 'working' assets and a smaller proportion of idle cash. Unless it can redeploy those idle assets in something as profitable as the average of what it is doing with its other assets, it should give the money back to the company's owners to invest as they see fit.

Rather than physically sending the owners the cash, they can simply have a market buyback program where they facilitate an orderly exit from investors who would have otherwise wanted to sell shares on the stockmarket which would have depressed the company's price. The shares are then cancelled leaving fewer shares in issue and a greater proportion of 'useful' profitable assets per share.

Example: £1 share price, 50 billion shares in issue, £48 bn of assets used in operations to generate profits at 5% a year , £1bn of cash giving necessary liquidity to absorb any issues that come up, £1 bn of further liquid assets not doing very much and earning only 0.5% a year on rolling deposit, well below the return of the regular normal profitable assets.

Alternatively get rid of the "£1bn of further liquid assets earning 0.5% a year" and just have 49bn shares in issue supporting the £48bn of productive assets generating 5% a year return on capital and £1bn of necessary cash to absorb any liquidity issues.

After doing the buy back and reaching the second situation the company has a greater proportion of its total assets being used to do productive stuff, generating more profit per share ; and the willingness to buy in the market can stimulate demand for the shares because nobody needs to sell them at 65p a share if Lloyds themselves will buy them back for a pound.

[numbers are examples only]

veryintrigued

29 million bought back in the last 36hrs.

The markets reaction?! Not that much!

bowlhead99

Average volume 150 million shares traded a day. Today happened to be about 130 million.

With that sort of volume, one might say: "Less than 30 million bought over a multi-day period? Expected market reaction - not that much!"

As you'll have seen, markets are volatile at present. The fact that Lloyds shares haven't jumped up to a higher price does not mean there's been no beneficial price effect from Lloyds being a buyer in the market for up to hundreds of millions of pounds worth of purchases of their own shares. Consider what the price might have been if they hadn't bought all those shares. Compare what the price is and what it might have been if they hadn't done the purchases, and then you can perhaps better gauge whether the market 'reacted' or not. But likely you can't gauge it because you don't really know what the price was going to be without the purchases.

veryintrigued

bowlhead99 wrote: »

Average volume 150 million shares traded a day. Today happened to be about 130 million.

That's incredible figures! But 20 million (yesterday) is still a hefty slice of that.

bowlhead99 wrote: »

But likely you can't gauge it because you don't really know what the price was going to be without the purchases.

I'll not even begin to say I do!

Thrugelmir

veryintrigued wrote: »

29 million bought back in the last 36hrs.

The markets reaction?! Not that much!

Sounds like a staged repurchase then. There was a single trade of 28,437,108 shares for a consideration of £18.5 million today.

veryintrigued

Thrugelmir wrote: »

Sounds like a staged repurchase then. There was a single trade of 28,437,108 shares for a consideration of £18.5 million today.

Agree on staging - that was previously stated by them that was their aim.

Think your figures are wrong though as....

I got an email today stating 8,704,300 had been purchased today.
And an email yesterday that 20,028,291 had been purchased yesterday.

veryintrigued

Another buyback of over 3 million shares today.

I know it's wrong and boring but I find this fascinating!

bowlhead99

veryintrigued wrote: »

Another buyback of over 3 million shares today.

I know it's wrong and boring but I find this fascinating!

3 million shares is nothing in the grand scheme of things. At under 70p a share, 3m shares is worth about two million quid which is less than the CEO gets paid each year. and they are a company that's worth £40-50 BILLION with over a hundred million shares changing hands each day.

If you watch it long enough, don't worry, it will soon stop being fascinating!

EdGasketTheSecond

Companies buying back their own shares are a bit like the Oszlum bird; watch out

veryintrigued

Another 15million bought back today!

With lumps bought last week and previously that must be upwards of 60million.