Call a halt to the share buy-back con

I have always been suspicious of share buy-backs, so was disappointed to see the recent moves by corporate giants Microsoft, Hewlett Packard and Nike, in the midst of market turmoil last week, to buy billions of dollars worth of their own shares and cancel them, in the hope that the value of the remainder would rise.

It has always struck me as being the worst imaginable kind of financial thinkable, and an affront to the capital investors who put up cash for the shares in the first place. It may be legal and logical, but fiddling with the sums in this way is not the reason we have such sophisticated financial markets. It is the ultimate financial con-trick perpetrated by CFOs with one eye on the executive stock-options and who, to borrow a phrase, know the price of everything but the value of nothing.

Imagine if retailers did the same. The supermarket finds it cannot sell a consignment of oranges at Dh1 apiece, so it throws half of them in the garbage, marks the rest up to Dh2, and expects the customer will be fooled into thinking that is a good deal. Or at the car-showroom: Toyotas are not selling, so we'll send half back to Japan and double the price of the models on offer. Who would be fooled by that? Yet that is the logic of the share buy-back.

It seems especially crass in the current financial crisis. Credit is tight, cash is king, so a corporate icon like Microsoft decides to blow some $40bn of valuable folding money on its own shares, just to cancel them? To me that is the ultimate signal senior management has lost its corporate vision, and should be replaced. At a time when short-selling has (wrongly, I believe) become virtually a capital offence, it is about time the practice of share buy-backs was equally outlawed.