* Nestle, others announce $11 bln in buybacks
* Some politicians, investors consider them bad for economy
* Trend likely to continue in Europe, fade in U.S. -analysts
* Buybacks worth 1.5 pct of Europe market cap, 3 pct in U.S.
By Lionel Laurent and Blaise Robinson
LONDON, Aug 29 A series of share buybacks in
Europe is sending a mixed message about the economic recovery -
companies are financially healthy, but they also seem reluctant
to reinvest cash in a stalling economy.
Corporate Europe still lags the U.S. appetite for buybacks,
but euro zone inflation has reached a five-year low and capital
spending by businesses remains weak. Any move that enriches
shareholders is drawing policymakers' attention.
Switzerland's Nestle, Denmark's Moeller Maersk
and commodities trader Glencore have this
month announced plans to return some $11 billion to shareholders
in buybacks. Those deals follow a rebound in dividend payouts in
Europe, driven by low interest rates and better corporate
Buying back shares is not a direct cash payout like a
dividend, but it does return capital to investors. It reduces a
company's outstanding shares and usually inflates both share
price and earnings per share.
Investors and analysts expect European buybacks and dividend
payouts to keep rising for the time being. The European Central
Bank is expected to do what it can to keep bond yields low,
companies are benefiting from lower costs and a falling euro.
But they look bad for the economy to some. Corporate cash is
handed back to shareholders rather than invested in the company
or paid in higher wages. French President Francois Hollande told
the newspaper Le Monde last week bosses should use tax credits
to reinvest and hire instead of paying out dividends.
"There is a negative aspect to buybacks, they can only last
for so long after that initial (share-price) spike ... And
without capital expenditure, you don't get wage growth," said
Brenda Kelly, strategist at IG Markets.
Enriching shareholders can still benefit the economy, others
say. The money gets reinvested and is not necessarily a mark of
misguided capital allocation. They cite the mining and energy
sectors as cleaning up years of over-spending and mixed results.
The side-effects of capital return are already a topic of
debate in the United States. Cash-rich American companies have
chosen to dip into a collective $1.8 trillion hoard to buy back
shares and fund mergers rather than boost growth and returns
through long-term investment in their businesses.
That has led Societe Generale strategist Albert Edwards to
say companies have been "the only substantive buyers" of U.S.
equity in the post-crisis economic cycle; in a note on Thursday,
he wrote that companies were essentially issuing cheap debt to
buy expensive equity, further inflating asset prices.
Reuters data suggest buybacks are slowing globally, as the
United States lays the groundwork for an interest-rate hike
befitting its strengthening economy. So far this year, buybacks
are worth around $301 billion worldwide, down from around $380
billion from the same period in 2013.
But in Europe, where the ECB is increasingly expected to
loosen rather than tighten its monetary purse-strings, investors
are still hunting for companies that are already buying back
shares or likely to start.
JPMorgan research shows that while U.S. buybacks represent
slightly more than 3 percent of the total S&P 500 index market
capitalisation, European buybacks are at 1.2 percent of the
total STOXX 600 market cap, with room to grow.
European stocks that have already announced buybacks are
slightly outperforming. A basket of some 30 such stocks -
including GlaxoSmithKline, BHP Billiton and Reed
Elsevier - tracked by J.P.Morgan is broadly flat since
end-May while the STOXX 600 is down one percent.
"There is still clear demand for cash to be returned to
shareholders, in particular where there's been perceived
over-investment in the past," said Robert Parkes, director of
equity strategy at HSBC.
"With interest rates where they are and equity valuations
still reasonable you would expect a pick-up from here."
(Reporting by Lionel Laurent and Blaise Robinson; Editing by