Sound and Fury of Buyback Scrutiny Will Change Little, Goldman Sachs Says

NEW YORK (TheStreet) -- Not sure whether stock buybacks are good or bad? You'll get a lot of help making up your mind during the next election cycle, but don't expect much to happen in the way of real change, a Goldman Sachs report advises.

Share repurchases have increased throughout the recovery from the global financial crisis, "totaling over $500 billion in 2014 among S&P 500 companies and representing more than one-third of cash use and about half of earnings," Alec Phillips, U.S. political economist with the New York bank, wrote in a report. "Our equity strategists expect buybacks to rise to around $600 billion in 2015."

Phillips cites three reasons why share buybacks are likely to get more attention in and around DC:

  1. The growth of buybacks has "raised concerns not just among progressive lawmakers but also among some investors and analysts who suggest that the funds might be better put to other uses."
  2. "The White House is expected to nominate two SEC commissioners, one Republican and one Democrat, to replace two departing members. It seems likely that the nominees will be pressed on this issue."
  3. As 2016 election hype grows, candidates will be asked to weigh in on a number of financial regulatory issues, including this one.

Despite the noise, Philips doesn't see much coming from increased talk about buybacks in the next two years. Anti-buyback legislation would have a difficult time making it through a Republican-controlled -- i.e., corporation friendly -- Congress.

"Corporate share repurchases look likely to draw increased political attention, but rules changes are unlikely in the near term, he wrote. "To the extent that any policy changes are made, the effect on business investment is unclear but seems likely to be small."

While the SEC might amend rules issued in 1982 that limit the legal liability a company could face for stock repurchases -- which influence stock prices -- Phillips points to recent statements by SEC Commissioner Kara M. Stein that suggest the agency won't do so.

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