Buybacks Backstop The Markets...

June 24, 2018
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…For Now!

JPMorgan’s Nikolaos Panigirtzoglou was out with the latest version of the bank’s popular “Flows And Liquidity” series last week and touched upon foreign profit repatriation and share repurchases.

He begins by noting that the pace of repatriation looks to be well out ahead of the previous episode in 2005.

“The $217bn that was likely repatriated during the first quarter of 2018 represents around 10% of our estimated $2.1tr stock of offshore cash,” Panigirtzoglou writes, adding that “during the repatriation episode of 2005, we estimate that $132bn was repatriated by US non-financial companies during the last three quarters of that year, represent[ing] around 15% of the estimated $863bn stock of offshore cash at the time.”

So in other words, corporates have brought back 10% of offshore cash in ONE quarter this time around versus 15% in THREE quarters in 2005, thus the conclusion that the pace is much faster.

Predictably, almost none of that $81 billion was used for capex.

“Of the $81bn of repatriation flow in Q1, $35bn was likely used for share buybacks, only $2bn for capex, and the rest ($44bn) was likely used for withdrawing corporate debt,” Panigirtzoglou says.

But the exceptional strong US net equity withdrawal of $150bn for Q2 is less likely to be repeated in the second half of this year, unless an equity market correction induces US companies to step up their share buyback activity as it happened before during Q3 2015 or Q1 2016. This would either mean utilizing cash or more debt. However, with interest rates rising company CFO’s have a choice to make a difficult capital allocation decision.


Stay Tuned, Disciplined & Patient! {TJM}

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