What's going on?
Credit Suisse reignited some love for investment banks on Wednesday after announcing it would buy back as much as $3 billion worth of shares from investors over the next two years – its stock rose 2%.
What does this mean?
There are two ways companies deliver a return to their shareholders: via a rising share price (as other investors seek to buy in), and by actually paying out cash through both dividends – portions of profit – and share buybacks.
As well as buying back lots of shares, Credit Suisse is planning to increase its dividend by 5% each year. And while the company doesn’t have much control over its share price (beyond buying them back, of course), it’s targeting at least a 10% profit margin next year, compared to 6% this year – which could lead to higher demand and, therefore, a higher price.
Why should I care?
For markets: There’s still much to improve – at Credit Suisse and elsewhere.
Several big banks have fallen foul of scandals recently (Goldman and Deutsche, to name but two), and Credit Suisse is no angel either. Its new CEO has been busy reshuffling the business over the past three years, while Switzerland’s banking sector overall is also trying to regain its former “Safe Swiss” reputation. With the share price down 35% this year, Credit Suisse’s investors have shown their displeasure. By buying back its own shares, the bank creates fresh demand (albeit from itself), which may arrest the decline in their price.
The bigger picture: Lowe’s patched up its share price.
Home improvement retailer Lowe’s announced buyback plans of its own on Wednesday. After its new CEO “kitchen sinked” quarterly results last month, setting a low bar for future success, the company wasted little time in hurdling it. As well as announcing its intention to buy back an extra $10 billion of its shares on top of $4.5 billion already planned (funded, perhaps ominously, by fresh bonds), Lowe’s forecast stronger-than-expected earnings for next year. Investors, grins plastered on their faces, knocked its shares up 4%.