“Treasury share buybacks embody the financialization of the economy”

“Treasury share buybacks embody the financialization of the economy”

Dn a turbulent economic and social situation, France seemed to be Europe’s good student. But in a few days, strikes in major companies in the oil sector shattered this feeling of relative tranquility, the country experiencing a large and rapid wave of “dry” gas stations with harmful consequences for the users concerned. .

France is still a long way off, but it should nevertheless be possible to make positive progress towards better dialogue between the social partners, thanks to concrete initiatives. The proposal that we present here concerns the field of finance and its societal dimension: the buyback by a listed company of its own shares, then cancellation of these repurchased shares.

This operation has the consequence of mathematically increasing the financial rate of return (net result on equity) since for a comparable result, the total number of shares decreases: we speak of the effect « accretive “. The increase of this famous return on equity (“return on equity”), which some investment funds want to set at 15%, is likely to boost the stock market price of the share concerned, to the delight of both shareholders and managers whose so-called variables are most often linked to the evolution of these financial performances.

Exceptional operations that have become frequent

We are here in an area that calls for special attention, because the boundary between the “signal” to market operators and price manipulation is porous. These operations, which should be exceptional, not only have become very frequent, but have taken on gigantic proportions in recent years, particularly in the United States where they represent several hundred billion dollars each year.

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Knowing that these own share buyback operations are made possible by the use of cash accumulated within the company, they constitute in this context distributions of value to shareholders, which even prove to be superior to those, traditional, dividends. They embody the financialization of the economy which has accelerated.

In Europe, and more particularly in France, the wave of share buybacks has so far been much less strong, but is nevertheless significant. The TotalEnergies group is an example of this: the group’s management has thus assigned itself April 28 as one of its priorities, to ” allocate part of the surplus cash flow from high hydrocarbon prices to buybacks of own shares”. This group carried out 3 billion euros in share buybacks in the first half of the year and plans a total of 7 billion for 2022.

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