As working people struggle to find jobs and protect their living standard from corporations like Verizon, which is demanding huge concessions from its union workers, corporations in the US are sitting on more than a $1 trillion in cash stockpiles. This large amount of excess cash instead of being invested in new factories and new jobs is being used by companies to repurchase shares of their own stock.
Bloomberg.com earlier this month reported that corporate boards so far this year have authorized $324 billion in stock buybacks, and if this trend continues that amount will increase to $554 billion by the end of 2011, making this year the third highest year since 1985 for stock repurchase authorizations. The only higher years were 2006 ($665 billion) and 2007 ($863 billion).
“Corporate America has a lot of money,” said Rob Leiphart of Birinyi Associates to Bloomberg.com. “Buybacks offer the ultimate flexibility in that you deploy capital and you aren’t restrained going forward.”
Leiphart was right about corporate America having a lot of money. According to the Wall Street Journal, non-financial companies in the Standard & Poor’s 500-stock index were holding $1.12 trillion in cash and short-term investments at the beginning of August. That’s up 59 percent from $703 billion in 2008.
With unemployment hovering around 9 percent, the housing market in the doldrums, and consumers still trying to reduce their debt obligations, there hasn’t been enough demand to fuel serious economic expansion. As a result, corporations haven’t been spending as much on innovation, capital expansion, or job growth, which has left them with this large hoard of cash.
Stock repurchases, that is agreeing to buy a certain amount stock at a slight premium, are one way that corporations can spend their excess cash and make their company look good in the eyes of shareholders. Doug Henwood, business writer and editor of the Left Business Observer, says that stock repurchases along with mergers and acquisitions and dividends serve as “a conduit for stuffing money into shareholders’ pockets.”
The list of companies that have authorized stock repurchases is quite extensive and includes companies like Lockheed Martin, Southwest Airlines, Lowes, Disney, AOL, Home Deport, Best Buy, Capital One, and Verizon.
Last February, a few months before Verizon demanded compensation cuts totaling $20,000 per worker per year from its union workers, the company announced that its board of directors had authorized the repurchase of 100 million Verizon stock shares at a cost of $3.62 billion.