Soaring company share buybacks raises corporate leverage, warns BIS

Published Tue, Sep 15, 2020 · 09:50 PM

London

SOARING company share buybacks have been a major contributor to the equity bull market in the past decade.

But the Bank for International Settlements (BIS) warns that the policy has raised corporate leverage, that is, the proportion of borrowings in companies' balance sheets. Although buybacks were not the sole cause, high leverage has been a major reason for business failures and bailouts and a general downturn in profits during the Covid-19 pandemic.

It is thus not surprising that the BIS is concerned that the surge in equity prices during the past few months is out of step with economic reality. Officials of the BIS, the central banks' central bank, do point out that the main reason for stock market strength, especially in the United States, has been the …