We seem to debate buyback vs r/s but why not both? I don't proclaim to know much about this type of thing but maybe C buys say 8 billion shares over the next year or so and does a 2 for 1 r/s on the remaining 20 billion shares to get us to 10 billion shares outstanding. I could live with this, especially if there is some organic growth going on in Asia.
I think maybe we all need to be a little realistic when it comes to our return. I don't think this thing is ever going to get to 12 to 15 without some sort of reverse. Yes? No?
Haven't really seen anyone say you can't do both, they probably will do both. It just looks better to have a stock price of $20+. In most industries customer confidence matters but in banking it's especially important and if it sways new customers or keeps current customers it's a help. All of your major competitors will have mid teens or higher prices(BAC, WFC, JPM)so again you may want to have one that high just because it will make people feel better about the company even though as the poster above states it doesn't change the value of the company. As far as value using current share count, I believe they could get to $7.50 in a year which would be 11 x earnings and 1.6 x tangible book. If they do a buyback it would depend on the share price at the time of the buyback as to how high it could go.
OK. I am not sure why people get so excited about splits and r/s. I mean I understand it from a behavioral finance perspective but there is no intrinsic value creation or distruction which moves the needle on the company's intrinsic value.
A stock price ...ALL STOCK PRICES ... are completely and utterly arbitrary.
People think that just because a stock splits that all of a sudden the company is gonna go on a tear price wise.
The only true "value" that a split does is create a little more liquidity in the stock among retail investors (a fraction of the trading market). Maybe that is worth someting -- may be not. But I know I wouldnt put a huge value premium on that.
All that said, the practical theory goes: splits help the stock go higher (liquidity, behavioral effects, etc). And reverses actually make the stock price go down. Thats why companies RARELY do r/s. It sends a negative signal to the market. In fact, I think I remember reading about a study how stocks that do r/s tend to not be around 5 years later. (puts a nail inthe proverbial coffin).
Again, no intrinsic value creation for the company. However, it is a more tax efficient way to get excess $$ to investors.
In other words, the stock price goes up but the market cap essentially stays the same. Therefore, the stockholders basically get their $$ without the tax effect of paying double taxes (corp tax then the dividend tax...).
In other words, buybacks are better (in my view) than paying dividends because it is more tax efficient for the investor.