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Buying (and Selling) the Future on Wall Street

Verizon as a case study of why our economy doesn’t work, part six

The “ah-ha!” moment came during a conversation with a friend. What we realized: the way we usually talk about the stock market doesn’t match the reality of our modern economy. Things we assume about stock ownership often aren’t really true.


New York Stock Exchange, 1963 (Photo by US News and World Report via Library of Congress)

Start with the basics: what is a share of stock? Most of us think “Investors give a business money and get back shares of stock that give them a fractional ownership of the company.”

But try applying that concept to Verizon, and it doesn’t fit. Verizon stockholders buy and sell shares on the open market – and none of that money goes back to the corporation. The money that investors pay when they buy stock… goes to the investors who sold the stock.

So buying stock isn’t “an investment in the company”… it’s an investment in the stock itself. If you later sell that stock for more than you paid for it, that profit is what’s known as a “capital gain.” If you sell it for less than you paid for it, that’s a “capital loss.”

Stock ownership does give shareholders a “fractional ownership of the company.” But what does that mean? There are more than 4 billion shares of Verizon stock outstanding.  If you own one of those shares, you don’t have rights to any particular network router or mile of transmission line.  Instead, you own slightly less than one-four-billionth of the corporation’s “stockholder’s equity.”  That means if the corporation were to be liquidated tomorrow, you – along with all the other stockholders – would share whatever remained after the corporation’s assets were sold and its other debts were paid.

And that’s probably when, if you were a stockholder, you would start remembering the $49 billion in long-term debt that Verizon acquired in 2013.

And that’s probably when you’d realize that Verizon’s corporate balance sheet shows less than $12.3 billion in “total stockholder equity.” And there are more than 4 billion shares of stock outstanding.

Which means each share of stock represents less than $3 in stockholder equity.

VZ stock chart

Verizon Share Price

Verizon has been trading above $40 a share since… April Fool’s Day 2012. (Back when there were less than 3 billion shares outstanding and the balance sheet showed stockholder’s equity of about $11.76 per share.)

That’s a huge difference between the per-share value of stockholder equity and the per-share price stockholders have been paying… for years now.

So… what else are stockholders buying? (in addition to that minuscule percentage of a relatively small amount of stockholder equity)

Each share also confers the right to receive a dividend, when and if the corporation issues dividends.  And – no surprise – Verizon has been issuing steadily-increasing dividends for more than a decade.  At this point, it’s issuing dividends that total more than $2.20 a year.  With shares trading between $40 and $45, that means stock purchasers can expect to make back – in dividends – about 5% a year on their investment. Which is way more than the rest of us can get in bank interest right now, if we put money into a savings account.

But although those dividends represent a whopping big “return on investment” – there’s still the risk that you could lose money on the stock itself.  Think about it: if you bought a share of Verizon stock last October, you paid about $49 a share. Since then, you’ve received about $2.20 in dividends. But the price of each share of stock has dropped to about $44. So even though you’ve received 5% in dividends… if you sold the stock now, you would still have “lost” about $2.80 per share.

So corporate executives pay a whole lot of attention to share prices.

VZ_Exec_Comp_Program_from_ProxyFor two reasons. First, because executives’ compensation is largely “pay for performance.” For Verizon executives, 90% of compensation is “incentive-based pay.” And what’s the objective? “Align executives’ and shareholders’ interests.”

Second reason: because most corporate executives own a lot of stock in their company.

VERIZON SHARES OWNED by executivesAs of this past February, when stock incentives were awarded, Verizon’s top 10 executives reported owning a total of more than 645,000 shares of corporate stock – worth, at the time, $49.31 per share… or, more than $31.8 million.

But Verizon stock is now trading at about $44 per share. That means those same executives’ shares are now worth only about $28.4 million.

So is it really a surprise that corporations spend trillions of dollars buying back their own stock, to bump up share prices?  Is it really a surprise that corporations borrow money to pay dividends and fund buybacks?

I don’t see anything here that provides an incentive for corporate executives to grow a company long-term.  Nothing that provides an incentive to pay employees a fair wage.  Nothing that provides any incentive to “create jobs” (no matter how low the tax rate goes).

The only incentives are: to keep stock prices high and to pay dividends. (And an incentive for corporate executives to take as much money as they can, however they can, while it’s still available.)

And so for the rest of us, the economy doesn’t work.

— — — — —

retirement eggWondering why you should find time to care about this, with everything else that’s going on right now?

Because of that huge difference between the per-share value of shareholder’s equity and the actual price per share.

And what happens during recessions.

And the fact that almost everybody’s retirement money is – in one way or another – invested in the stock market.

Here in the Granite State, the NH Retirement System lost 25% of its value in the last recession.

In June 2007, before the Wall Street meltdown, the NHRS had $5.9 billion in investments, including
•  $29.7 million of stock in Citigroup, Inc.
•  $23.5 million of stock in American International Group, Inc. (AIG)
•  $14.0 million of bonds issued by Federal Home Loan Mortgage Corp. (Freddie Mac)
•  $13 million of bonds issued by Federal National Mortgage Association (Fannie Mae)

Two years later, when the recession was in full force,
•  Citigroup stock had plunged to only about 6% of its former value
•  AIG stock was worth only about a penny on the dollar and
•  Freddie Mac and Fannie Mae had both been placed into federal conservatorship

That’s what happens to stock values, during recessions.

Remember hearing about the Detroit bankruptcy? Which supposedly was triggered by unsustainable public employee pension costs? The Detroit pension systems were fully funded, as of June 2008. Then the recession hit.

All those defined-contribution 401(k)s? Across the country, families lost an estimated $2 trillion (with a T) of their retirement savings when stock values plummeted during the last recession.

Artificially-high stock prices hurt almost everybody, in the long run.

— — — — —

Yes, there’s more.

Smashed Piggy Bank RetirementVerizon’s balance sheet includes $24.6 billion of “goodwill” and $81 billion of “intangible assets.” And if you factor those out, Verizon has “net tangible assets” of minus $93.4 billion. That’s what most of us would think of as a negative net worth… of about minus $23.35 per share. While investors are paying about $44 per share to buy the stock.

The good news, from the investors’ perspective: they’re not personally liable for that $116 billion in long-term corporate debt. If – and this is purely hypothetical – if Verizon were to declare bankruptcy and default on that debt, stockholders would not be expected to pitch in $23.35 per share to satisfy the corporations’ creditors.

The bad news is, somebody out there would take that loss… and retirement systems across America invest in corporate bonds. (At last report, the NH Retirement System owned more than $433 million worth of corporate bonds.  Can’t tell, from here, whether any of those include Verizon.)

— — — — —

Photo by Stand Up to Verizon via Flickr

Photo by Stand Up to Verizon via Flickr

If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.

Stand Up to Verizon is on Facebook here.

Part one of this “Verizon as a case study” series is here.  It focuses on Verizon’s $5 billion stock buyback last February, and the short-term bump in stock prices which followed.

Part two of the series, showing how Verizon executives benefited from that $5 billion buyback, is here.

Part three, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.

Part four, about phantom stock and how Verizon executives are avoiding taxes by investing their own money in imaginary assets, is here.

Part five, about how Verizon is borrowing money to pay stockholders and executives while demanding givebacks from unions, is here.

This is part six.  And yes, there will be more.

Verizon Borrows Money To Pay Stockholders And Executives While Demanding Givebacks From Unions

Verizon as a case study of what’s wrong with our economy, part 5

Photo by Stand Up to Verizon via Flickr

Photo by Stand Up to Verizon via Flickr

It’s a math problem, instantly recognizable by anybody who’s tried to balance a family budget lately.

But it’s also a morality problem.

Here’s the thing:

  1. Verizon reports annual income of $54,287 per employee. BUT
  2. This past February, Verizon indulged in a stock buyback equal to about $28,000 per employee. AND
  3. Verizon continues to pay out, in annual dividends to stockholders, more than $50,000 per employee.

Between buybacks and dividends, there’s a lot more money being “distributed to stockholders” than the company reports as income. That’s the math problem.

Which is depressingly reminiscent of the business practices of the private equity industry, documented back in 2012. “Bain, and some other private equity companies …had companies paying dividends using borrowed money, not profits.” (Read “What Mitt Romney Taught Us about America’s Economy” here.)

And Verizon has accumulated a substantial amount of debt, along the way. Right now, the corporation has long-term debt equal to about $655,000 per employee. And its Morningstar credit rating is only BBB (“moderate default risk”).

But the dividends it pays out to shareholders keep ratcheting higher… always higher. (And yes, Verizon CEO Lowell McAdam is a substantial shareholder, getting dividends worth more than a half-million dollars a year.)

Instead of cutting dividends to grow the business, Verizon has borrowed money – putting itself in debt at least through 2055.

Just this month, the corporation announced another increase in the dividend rate. While the corporation’s employees were working without a contract. Because Verizon wants givebacks from its employee unions.

Again: Verizon is increasing the amount of money paid to shareholders at the very same time it is insisting on employee givebacks.

Yes, there’s a morality problem here.


Anybody else see the Brookings study, earlier this week, “Would a significant increase in the top income tax rate substantially alter income inequality?”

As I see it, the researchers totally missed the point.

When you’re talking about the macroeconomic effects of tax rates, the big effect has nothing to do with the amount of revenue produced.

Instead, policymakers (and researchers) need to focus on how various tax rates influence decisions made on the micro level.

Anyone who lived through the Eisenhower era of 90% tax rates knows that CEOs make very different decisions when 90% of their income is going to the federal government. (For instance, they’re not anywhere near as likely to borrow money to pay themselves a stock dividend, if 90% of that dividend is going to the federal government.)


If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.

Stand Up to Verizon is on Facebook here.

Part one of this “Verizon as a case study” series is here.  It focuses on Verizon’s $5 billion stock buyback last February, and the short-term bump in stock prices which  followed.

Part two of the series, showing how Verizon executives benefited from the $5 billion buyback, is here.

Part three, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.

Part four, about phantom stock and how Verizon executives are avoiding taxes by investing their own money in imaginary assets, is here.

This is part five .  And yes, there will be more.



How Do CEOs Make Millions When The Company Goes Belly Up? Investing In Imaginary Assets

Verizon as a case study of what’s wrong with our economy, part 4

Enron play London

Photo by Tilemahos Efthimiadis via Wikimedia Commons

Remember Enron?

Remember when George Bush selected Enron executive Thomas White to be Secretary of the Army? Remember how, when he left Enron, White received a $13 million payment for “phantom stock”?

That was early in the biggest corporate meltdown in history (at the time).  And when analysts tried to reconstruct what went wrong, Enron’s “phantom stock” program was part of the explanation.  “According to documents provided by Enron to the IRS, in 2000, approximately 1,673 employees participated in the program.” “Enron’s SEC filings reveal that some payouts under the phantom stock plan were huge.”

Wondering what “phantom stock” is?

Well… it actually isn’t. Because it’s imaginary. It doesn’t exist.  In the terminology of Verizon’s “Executive Deferral Plan”… it’s just “hypothetical.”

Ah yes… as I was researching this series, I stumbled over traces of Verizon’s phantom stock.

For instance, according to SEC filings, Verizon Director Richard L. Carrion “owns” more than 98,500 shares of Verizon’s phantom stock. “Each share of phantom stock is the economic equivalent of one share of common stock and is settled in cash. The shares of phantom stock become payable following the reporting person’s termination of service as a director.” As of last week, Carrion’s phantom shares were “worth” more than $4.3 million. Which, under a 2004 tax law, apparently isn’t subject to taxation until the money is actually paid to Carrion. After “termination of [his] service as a director.”

And apparently, until the money’s paid out, Verizon’s phantom shares remain so hypothetical that not only are they not taxed

…but I couldn’t find any accounting for them, as a long-term corporate liability, in either Verizon’s 2014 Annual Report or its 2015 proxy statement.

Hopefully, I just missed it. Hopefully, the shareholders have some way of knowing exactly how much “economic equivalent” is out there as a standing liability for future payment.  Because when I added up all of the directors’ phantom stock I could find in the SEC filings, it totaled more than 400,000 shares — which would be worth more than $18 million at last week’s stock prices.

And Verizon doles out lots of phantom stock – not just to directors, but also to Verizon employees.

For instance, Verizon CEO Lowell McAdam. According to SEC filings, McAdam “owns” more than 278,900 phantom shares of Verizon stock. What’s that worth? I have no idea.  According to the filings, the phantom stock McAdam “owns” is the economic equivalent of only “a portion” of the corresponding shares of Verizon stock. How big a “portion”? I have no idea. I couldn’t find that anywhere, either.

VZ phantom stock - employee officersBased on what I could find, 10 Verizon employees who report their ownership to the SEC together “own” more than 1.5 million phantom shares. All reported as “deferred compensation” – payable in the future – but I couldn’t find any record of how much Verizon’s total long-term liability is, for all these “hypothetical” shares.

I couldn’t even find out how many people “own” phantom stock through Verizon’s “Executive Deferral Plan.” Although “a company’s officers and directors” are required to file ownership disclosures with the SEC, other top- and mid-level executives aren’t required to do so. (And remember, Enron reportedly had about 1,673 executives in its phantom stock program.)

And it gets worse.

That Executive Deferral Plan (EDP) also offers “a ‘Moody’s’ investment fund that provides a return that mirrors the yield on certain long-term, high-grade corporate bonds.” (page 8)   But again, this isn’t an actual investment in an actual investment fund.  No, remember, this Plan “is not funded and has no trust or assets to secure your benefits.” (page 17) Because, Verizon tells its executives, “If the EDP were funded by a trust, you would be subject to immediate income tax on your vested Plan benefits.” (also page 17)

Instead, this Plan seems to be just a bookkeeping mechanism. The Plan summary explicitly says: “the investments referred to in the Plan are hypothetical in nature… the Plan administrator will track the performance of the investments that correspond to the hypothetical investments in your EDP account, and the value [of] your EDP account will be adjusted to reflect the gains (and losses) of the investments corresponding to the hypothetical investments in your account.” (also page 17)

But I couldn’t find out how much money – total – is hypothetically “invested” in this hypothetical “Moody’s” fund. I couldn’t find out how many executives participate. So what’s the long-term liability to Verizon’s bottom line?

And it gets worse. There are apparently still other hypothetical investment options. From the Plan Summary: “[Y]ou can elect to have your EDP account treated as if it were invested in any of the hypothetical investment options that mirror the performance of the investment options that are available under the Verizon Savings Plan for Management Employees or the Verizon Business Savings Plan for Management Employees, whichever applies to you.”

But the bottom line liability? How much is owed to Verizon executives under this Plan? I couldn’t find it. Anywhere.  (If you can find it, please leave me a note in the comments!)

Remember that one Enron executive, Thomas White, received $13 million for his phantom stock… and there were 1,670 other enrollees in that company’s program.

Now… I’m not trying to draw an analogy between Enron and Verizon. But the “phantom stock” thing really caught my attention.

And it makes me uncomfortable that Verizon – which has about 178,000 working families depending on it for paychecks – is run by executives who are willing to put millions of dollars of their own money into “hypothetical” investments…

..just to delay taxation on I can’t tell how much executive compensation…

…at the same time Verizon is insisting on concessions from its employee unions.

And it’s not just Verizon. It’s corporations throughout our economy.

Big bucks to executives (who are using all kinds of imaginative ways to avoid taxation)… while working families are expected to give money back, to improve the corporate bottom line.

It’s why our economy isn’t working, for anybody but the folks at the very, very top.


If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.

Stand Up to Verizon is on Facebook here.

Part one of this “Verizon as a case study” series is here.  It focuses on Verizon’s $5 billion stock buyback last February, and the short-term bump in stock prices which  followed.

Part two of the series, showing how Verizon executives benefited from the $5 billion buyback, is here.

Part three of the series, looking at the disconnect between Verizon’s reported profits and the dividends it pays its stockholders, is here.

This part four.  And yes, there will be more.

Read more about how US tax policy encourages profit-taking — even profit-taking that bankrupts corporations — in “What Mitt Romney Taught Us about America’s Economy” here.


“Dividend” is Just Another Word for Payout

Verizon as a case study of why the economy doesn’t work, part 3


Photo by Stand Up To Verizon via Flickr

Once upon a time, dividends were how corporations distributed excess profits to shareholders.  But with the 2003 Bush tax cuts, things changed. The tax code began giving preferential treatment to dividends.  And then dividends themselves changed. Now they are nothing more or less than “a sum of money paid regularly by a company to its shareholders.”

The connection between profits and dividends got lost. Now dividends can be paid out of cash reserves… or funded by long-term borrowing. Where the money comes from doesn’t seem to matter all that much. The only thing that seems to matter is: that the money goes to the stockholders who expect it.

I stumbled over this ugly truth – again – while looking at stock buybacks, particularly those done by Verizon. Why do corporations do stock buybacks? One of the reasons given is: to reduce the number of shares outstanding, in order to increase the value of the remaining shares. Fewer shares should mean each share is worth more, right? But when I looked closely at Verizon’s latest huge stock buyback, well… the post-buyback price bump disappeared in about a month. (And of course, all the trillions spent on buybacks before September 2008… didn’t keep the stock market from crashing then.)

So then there’s the other reason given, why to do stock buybacks. Reducing the number of shares through a buyback increases the “earnings per share” metric. (Same earnings divided by fewer shares makes the EPS bigger). And, the second part of that reasoning goes, companies that have higher “earnings per share” can afford to give out higher dividends, which keeps stockholders happy.


When I looked at Verizon’s EPS, and compared it to corporate dividends… I didn’t see any correlation whatsoever. Here’s what it looks like, for the past five years.

Verizon eps vs dividends 5 years.You’ll notice that Verizon’s $5 billion buyback – announced and then mostly completed this past February – didn’t change their 2015 Q1 dividend (which was declared on March 6) and it didn’t change their 2015 Q2 dividend.  Nope.  Despite that $5 billion buyback, the quarterly dividend remained exactly the same as it was on September 4, 2014.  Even massive losses in 2011 and 2012 didn’t change the dividend. (How does a corporation lose $1.48 per share and still pay a $0.515 dividend? And the CEO still keeps his job? And the stock price doesn’t dive?)

Click on the image to see the same comparison over the past decade.

Here’s what I saw: the earnings per share bounced around, but the dividends stayed roughly the same. Dividends grew – with surprising regularity – but there didn’t seem to be any correlation whatsoever between earnings and dividends. Just a nice steady upward line on dividend payments.

Again, this isn’t just Verizon. I’ve seen the same pattern of steadily growing dividends in lots of other large corporations. Walmart. Boeing. FedEx. McDonald’s.

Steady increase in dividends, no matter what. Pretty much ever since the 2003 change in our tax laws.

Even through the Great Recession, dividends kept increasing. Ratcheting upward, ever upward.

But no correlation whatsoever – that I could see – with stock buybacks.

Not even the $5 billion stock buyback Verizon did in February.

Here’s the thing that still irritates me, about that buyback. In February 2014, Verizon’s Chief Financial Officer ruled out any buybacks for at least a couple of years. Instead, Verizon was supposed to be paying back debt—including the $49 billion of debt it had added less than five months before. That was the “biggest company debt offering ever…more than double the previous issuance record of $17 billion (by Apple, Inc.).” A deal that was “about the size of all outstanding obligations of the Slovak Republic.” A deal that was really, really expensive because of its size and the corporation’s low credit rating.

Yes, in those circumstances, it would indeed seem financially prudent to focus on paying back debt.  But instead, Verizon raised its dividend again. And did a $5 billion buyback in February 2015. And then came after its employee unions, looking for wage, benefit and job security concessions.

Back when Verizon’s CFO was ruling out buybacks, the corporation had $114 billion of debt.

Now, after that $5 billion buyback, the corporation has $120 billion of debt (as of June 30, 2015).

And – after shoveling all that money out the door to stockholders – the corporation still insists on concessions from its unions.

I did a little math. Verizon has about 177,300 employees (most of them are not represented by a union). If the corporation had spent that $5 billion on its employees – rather than buying back its own stock – Verizon could have given each and every employee $28,200.

And then I did a little more math.  Despite the February buyback, Verizon still has more than 4 billion outstanding shares of stock.  That means each of the quarterly dividends it has issued this year has cost the corporation more than $2.2 billion. That’s more than $50,000 per employee that Verizon will transfer to stockholders through dividends, this year alone.

And the corporation is demanding givebacks from its employees’ unions.

Money going to the top of the economic pyramid, rather than to working families – that’s why our economy doesn’t work anymore.


If you want to support the 39,000 Verizon employees who have been working without a union contract since August 1st, you can sign the petition here.

Stand Up to Verizon is on Facebook here.

Part one of this “Verizon as a case study” series is here.

Part two of the series, showing how Verizon executives benefited from the $5 billion buyback, is here.

This is part three of the series. And yes, there will be more.

Read more about how US tax policy encourages profit-taking — even profit-taking that bankrupts corporations — in “What Mitt Romney Taught Us about America’s Economy” here.

Verizon Proves Exactly What Is Wrong With Our Economy

Cui Bono (Who Benefits)?
Verizon as a case study of why the economy doesn’t work, part 2


Telephone Lineman repairing hurricane damage - FEMA photograph_by_Marvin_NaumanWho benefits when executives decide to spend corporate funds on stock buybacks?

In my last post: In February, Verizon announced it was buying back $5 billion of its own stock. The repurchase was mostly done within days, but the subsequent “bump” in stock price lasted less than a month. (BTW, Verizon shares are now selling for about 6% less than when the buyback was announced.)

Compared to other companies, Verizon doesn’t usually indulge in stock buybacks all that much.

Its annual reports show that the corporation keeps reauthorizing the repurchase of up to 100 million shares – but most of the time, that authorization just sits on the books and isn’t used. In five out of the past seven years, Verizon didn’t buy back any stock whatsoever. The corporation bought back only about one-tenth of one percent of its stock in 2013. And in 2014, the Chief Financial Officer even “ruled out stock buybacks for at least two or three years as it aims to slash debt.”

And then came 2015.

Yes, less than a year after the CFO “ruled out” stock buybacks, the corporation went ahead and bought back stock anyway – $5 billion dollars worth, and almost all of it purchased within days of the announcement.

Piecing the together the timing…

For ten of its executives, Verizon has a “long-term incentive plan” that includes periodic awards of “restricted stock units” (RSUs). SEC Form 4s show their receipt of RSUs from the 2012-14 incentive cycle. The way the plan works, each RSU can be exchanged for one share of common stock. And according to the Form 4s, most of the executives converted their RSUs into shares of Verizon common stock on February 13, 2015.

And yes, February 13th was pretty close to the peak of the post-buyback “bump” in the stock prices. Verizon shares closed at $47.86 on February 5th, the day the buyback was announced. But on February 13th, the RSUs were converted to Verizon stock at a per-share price of $49.31. That’s a buck-forty-five difference. Per share.

Adding up all the RSUs that were reported on the various Form 4s: Verizon awarded its executives more than 350,000 shares of common stock on February 13th – worth a combined total of $17.36 million.

But those same shares would have been worth only $16.85 million, at the February 5th closing price.

That’s more than a half-million-dollar difference, caused by that buck-forty-five bump in share prices.

Verizon’s incentive program also includes an option to divert the value of RSUs into executives’ deferred compensation accounts.

  1. Executive VP Daniel Mead diverted the value of almost 3,000 RSUs into his deferred comp account. The share-price difference between February 5th and February 13th meant Mr. Mead’s account was credited with an extra $4,300.
  2. Executive VP Craig Silliman diverted the value of all his RSUs into his deferred comp plan. The share-price difference meant that Mr. Silliman’s account was credited with an extra $17,600.

Mr. Mead also took advantage of the post-buyback price bump, by selling all the Verizon stock he owned on February 12th – at a price of $49.70 a share. That was almost two bucks above the February 5th closing price. Mr. Mead made almost $46,000 more on that sale than he would have, if he had sold the same stock on February 5th.

Adding up all those little differences… that (relatively small) post-buyback bump in stock prices meant more than $600,000 to the Verizon executives who received RSUs on February 13th.

For Verizon CEO Lowell McAdam, the difference in buyback prices amounted to almost $150,000 of additional value for his RSUs. (It’s good to be the boss: he gets a lot of RSUs.)

Is this why Verizon changed course and bought back stock even after announcing that it wouldn’t?

Verizon could have used that $5 billion for a whole lot of other things. Like, funding a contract for the tens of thousands of its employees who are now working without one.

Buybacks are a problem throughout our economy. Since the “end” of the Great Recession, corporations have spent more than $2.4 trillion on stock buybacks – providing short-term increases in stock prices, but little or nothing else. Really. I looked. I asked around. I did not find any research or academic studies showing that stock buybacks provide long-term benefits to corporations. (If you know of anything, please let me know in the comments section.)

Looking back a decade, I can’t help but notice: except for that little tiny repurchase in 2013, the last time Verizon indulged in buybacks was before and during the Great Recession.

In 2006, Verizon spent $1.7 billion on stock buybacks. At the beginning of 2006, Verizon shares were trading at about $27 per share; by the end of the year, they were trading at about $35. That was a huge bump in stock prices… but it didn’t last.

In 2007, Verizon spent $2.8 billion on buybacks. That year, the share price went from about $35 to about $40 at the end of the year. A decent bump, but…

During 2008, Verizon stock prices tumbled to as low as $22 a share, even while the corporation was spending $1.3 billion on buybacks. Stock prices closed out the year at about $31 a share… but tumbled again in 2009.

What else was going on during that time? Verizon approached its unions about early bargaining – but the corporation insisted on givebacks, so the unions walked away from the table in December 2007. The contract wasn’t settled until August 2008, when Verizon was faced with the prospect of a strike by its 65,000 union workers.

Here’s what hurts:

Verizon spent almost $6 billion on buybacks, leading up to the last recession; yet they started negotiations by demanding givebacks.

At the time, Verizon had 65,000 union workers; and union negotiators’ biggest concern was job security.

Now, that contract covers only about 38,000 union workers – and Verizon is once again spending billions on buybacks at the same time it is demanding worker givebacks.

And I couldn’t find anything – not one thing! – that would show there was any long-term corporate benefit from all those billions spent on buybacks.  As far as I can tell, it was all just “money down the drain”… money that could have made a huge difference to the families of Verizon workers.

And looking at the problem economy-wide? Yes, corporations spent trillions on stock buybacks before the last recession.  Trillions of dollars that could have made a huge difference to millions of families across America.

But all that money didn’t prevent the 2008 stock market crash.


Still with me? Are you trying to figure out why, if the stock prices bounce around so much, it would matter to Verizon executives whether their shares were worth a buck-forty-five more or less on the day they acquired them?

Here’s why it would matter: it will minimize future taxes. Somewhere down the road, when those executives sell those shares, they will probably have to pay capital gains taxes. “Capital gains” is the difference between the price at acquisition and the price the shares sold for. So: the higher the share price at acquisition, the lower the capital gain, and the less taxes the executive will have to pay.

And yes, right now Verizon stock is selling much, much lower than it was back in February. But those executives don’t have to sell their stock any time soon. They can afford to wait – years, if necessary – until the stock prices rise again.

They’re not trying to figure out how to pay their bills, with no job security. And their employer isn’t demanding givebacks.


H/T to economist William Lazonick, whose research first introduced me to the problems of buybacks.  Read his “Profits without Prosperity” here.

And yes, there will be more in this series.  Please check back for the next installment.

Billion$ (Trillion$) Down the Drain: Verizon as a case study of what’s wrong with the economy

photo by National Institute for Occupational Safety and Health (NIOSH) via Wikimedia CommonsThese days, most corporations indulge in stock buybacks. A buyback – or, “share repurchase” – is exactly what it sounds like.  Executives decide to use corporate money to buy back shares of stock, rather than investing that money in expanding the business, or using the money to pay back debt, or spending the money on employees.

So far this year, Verizon has spent more than $5 billion (with a “B”) buying back shares of its own stock. But what has that money actually bought?

The theory is that stock buybacks raise share prices. The theory is that if there are fewer shares, investors will be willing to pay more for them.

But as Verizon’s stock history shows, that only works in the short term. The artificial stock-price-boost doesn’t seem to last very long.

For instance, the $5 billion buyback Verizon announced this past February. This particular buyback was both announced and mostly completed within days. Verizon’s per-share price increased from $47.86 on February 5th (the day the buyback was announced) to $49.81 on February 11th. But the next day, share prices started falling again. By March 10th, the per-share price was even lower than it had been before the buyback.

And after the past few weeks’ stock market decline, Verizon stock is now trading at about 5% less than it was on March 10th.

So, what did that $5 billion buy?

The sad truth: as far as I can tell, it didn’t buy Verizon much of anything in the long run.  Investors who sold their Verizon stock on February 11th probably made some money.  Otherwise, at least from my perspective, it was all just “money down the drain.”

The real tragedy is: that money could have been used for so many other things. It could have been used to

…expand their business. Verizon even turned down $568 million in federal funding that would have subsidized the expansion of their broadband network.

…maintain their corporate assets. Millions of customers rely on Verizon’s copper landlines, and pay hundreds of dollars each year for service – yet Verizon spends remarkably little to maintain the network.

…fund fair contracts with its labor unions. Yes, Verizon is engaged in yet another contract standoff with its unions, because the corporation wants to cut shift and overtime differentials, job security and employee benefits. And executives have been preparing for this fight for more than a year now: according to a corporate press release, “Verizon took extensive measures to ensure its customers would not be impacted by any potential work stoppage. Thousands of non-union Verizon employees and business partners have undergone extensive training in various network and customer service functions.”

…change corporate practices that have resulted in more than $100 million in penalties from the Federal Communications Commission. $90 million for illegal billing. $7.4 million for consumer privacy. $5 million for rural call completion problems. $3.4 million for 911 outages. (And that’s just within the past year.)

It’s all about choices.

And Verizon executives have chosen to spend more than $5 billion buying back corporate stock.

Providing – as far as I can tell – no long-term benefit whatsoever to the corporation. (Although, yes, investors who sell their shares immediately following a stock buyback do benefit.)

Here’s the thing that bothers me, even more:

Since the 2009 “end” of the Great Recession, corporations have spent more than $2.4 trillion on stock buybacks.

Water going down a drainYes, that’s $2.4 trillion, with a “T.”

…Money that did not go toward job creation.
…Money that did not go toward business expansion.
…Money that did not go toward paying down corporate debt.
…Money that did not go toward improving wages, benefits or working conditions for employees.
…Money that – as far as I can tell – provided no long-term benefits whatsoever to the corporations that spent it.

Money that – as far as I can tell – just went “down the drain.”

Like that $5 billion for Verizon buybacks, back in February.


H/T to economist William Lazonick.  Read his “Profits without Prosperity” here.

Tens of thousands of Verizon employees have been working without a contract for more than a month. Read more here.

This post is just the first in a series. Please check back to read the next installment.

Verizon Workers: We’re Ready to Strike

 Thousands Rally in New York to Reject Verizon’s Demands to Eliminate Job Security, Slash Pensions, and Increase Health Care Costs

With a Week Remaining Before Contract Expiration, CWA and IBEW Demand Good Jobs, and Verizon Commitment to Good Service and FiOS for All


New York – At a rally today with thousands of workers and supporters, the Communications Workers of America announced that 86% of Verizon workers voted over the last two weeks to authorize a strike if necessary.  The contract expires at 12 midnight on Saturday August 1 and covers 39,000 CWA and IBEW represented telephone workers from Massachusetts to Virginia.

“Our members are clear and they are determined – they reject management’s harsh concessionary demands, including the elimination of job security, sharp increases in workers’ health care costs, and slashing retirement security. Verizon made $9.6 billion in profits in 2014, and reported $4.4 billion in profits just in the 2015 second quarter alone. Their demands are completely outrageous and unwarranted,” said Dennis Trainor, Vice President for CWA District One. 

The union and its supporters also pointed to the company’s refusal to build out its state-of-the-art FiOS network and its lack of investment in maintaining the original copper network. 

“On the one hand, Verizon refuses to build its high-speed FiOS network in lower-income areas.  And on the other, they are systemically ignoring maintenance needs on their landline network,” said Ed Mooney, Vice President for CWA District 2-13, which covers Pennsylvania to Virginia.  “This leaves customers at the mercy of a cable monopoly or stuck with deteriorating service while Verizon executives and shareholders rake in billions.”

A damning audit of Verizon’s FiOS rollout in New York City found that Verizon has failed to meet its promise to deliver high-speed fiber optic internet and television to everyone in the city who wanted it.  During its negotiations for a city franchise, Verizon promised that the entire city would be wired with fiber optic cables by June 2014 and that after that date, everyone who wanted FiOS would get it within six months to a year.  The audit found that despite claiming that it had wired the whole city by November 2014, Verizon systematically continues to refuse orders for service.  The audit also found that Verizon stonewalled the audit process. 

In addition, rates for basic telephone service have increased in recent years, even as Verizon has refused to expand their broadband services into many cities and rural communities, and service quality has greatly deteriorated. Verizon’s declining service quality especially impacts customers who cannot afford more advanced cable services, or who live in areas with few options for cable or wireless services.

In 2005, New York’s Public Service Commission (PSC) eliminated automatic fines for Verizon’s telephone service quality failures, reasoning that “competition” would improve services.  Instead, service quality plunged. In the 3rd quarter of 2010, Verizon cleared only 1.2% of out of service complaints within 24 hours, almost 79 percentage points lower than the PSC’s 80% requirement.  Rather than reverse course, the PSC changed its measurements, cutting out 92% of customers from service quality measurements and consolidating 28 repair service bureaus into 5 regions.  On paper, terrible service quality was almost miraculously transformed. In reality, service quality continued to decline.  

“The 2.5 million members of the New York State AFL-CIO will stand side by side and shoulder to shoulder with our brothers and sisters of CWA and IBEW in their fight for fairness,” said Mario Cilento, President of the New York State AFL-CIO. “It is through their hard work and dedication that Verizon continues to rake in huge profits. Yet bargaining proposals offered by Verizon punish workers by taking away job security, reducing pension benefits, and increasing health care costs. The dedicated men and women of CWA and IBEW deserve better. Our brothers and sisters will have the full resources of the NYS AFL-CIO at their disposal until a fair contract is reached.” 



39,000 workers are currently negotiating new contracts at Verizon.  Fortune Magazine ranked Verizon the 15th largest corporation in America in 2014, with revenues of $127 billion, profits of $9.6 billion, and market capitalization of $198.4 billion. Verizon had profits of $28 billion over the last five years, and paid its top five executives $249 million during that time.  

On July 21st, Verizon reported profits of $4.4 billion in 2Q2015 on revenues of $32.2 billion. The company also reported that during the first six months of 2015 it has paid out over $9.3 billion to shareholders in dividends and stock buybacks, an increase of almost $5.8 billion over the first half of last year. In the Wireline division, Operating Cash Flow rose to 23.5%, and operating income doubled, from 2.6% to 5.3%. FiOS continues to expand and succeed, now constituting 79% of Verizon consumer revenues on the wireline side, and achieving penetration rates of 35.7% for video and 41.4% for internet in markets where it is competing.

But at the bargaining table, the story is different. Verizon is demanding:

  • Elimination of long-standing job security protections including protections against layoffs and forced transfers.
  • Slashing retirement security.
  • Sharply increasing health care cost contributions.  Higher deductibles, co-pays and premium sharing.  Remove the union’s right to negotiate over retiree health care.
  • Vastly increasing ability to contract out of work.
  • Off-shoring call center jobs.
  • Elimination of cost-of-living raises.
  • Eliminate Accident Disability Plan for workers injured on the job.
  • Eliminate 20-year old Family Care Leave policy.


At the State House: Trying to get Money Out of Politics

2015-03-18 Senate Rules CommitteeEarlier this week, while the House Finance Committee was proposing cuts to state programs and services, the Senate Rules Committee was discussing a bill to help get Big Money out of politics.

The Senate amended SB 136 and then unanimously recommended that the bill Ought To Pass.  A full Senate vote on the bill is expected next week — and it is possible that the bill will be amended again on the floor, before the Senate votes.

SB 136 was one of a pair of bills filed this year regarding Citizens United and the effect of Big Money on our electoral system.  The House version called for a statewide “Listening Tour” — but last month, the House voted that bill down, largely along party lines.

Since then, 11 New Hampshire towns have passed local resolutions endorsing a Constitutional amendment to get Big Money out of politics.  During their 2015 Town Meetings, voters in Bedford, Canterbury, Gilmanton, Greenville, Madbury, Mason, Plainfield, Rye, Sandown, Walpole, and Westmoreland all approved warrant articles to overturn Citizens United.  So far, 68 Granite State municipalities have passed resolutions asking for a Constitutional amendment.

As the grassroots level, there is bipartisan agreement on getting money out of politics: 61% of New Hampshire Republicans support a Constitutional amendment to limit campaign contributions; 80% believe that Congress is more interested in special interests than its constituents.

2012_NH_State_LegMoney in politics isn’t just a federal-level issue. Corporations, lobbyists, professional associations and other groups pour hundreds of millions of dollars into state-level legislative races every two years.

Money in politics is influencing every level of our government.   The American Legislative Exchange Council (ALEC) has been so successful that now they’re drilling even deeper.  The American City County Exchange (ACCE) is bringing ALEC-style political influence to our local governments, too.

That’s why The Stamp Stampede has been following SB 136 so closely.  We are working to #GetMoneyOut of politics and #TakeBackOurGovernment.

  • Read “Is the NH Legislature Listening to Voters’ Anger when it comes to Money In Politics?” here.
  • Read “NH House Votes Down ‘Listening Tour’ on Citizens Unitedhere.
  • Read “Another Public Hearing on Citizens United in NH – Will it be the Last One this Year?” here.
  • Read “Senator Lou D’Allesandro: We Must Pass SB 136 To Overturn Citizens Unitedhere.

Stamp_StampedeThe Stampede is tens of thousands of Americans legally stamping messages on our nation’s currency to #GetMoneyOut of Politics. As more and more stamped money spreads, so will the movement to amend the Constitution and overturn Citizens United.

You can get your own stamp online at www.stampstampede.org.  Or, if you’re a member of CWA, you can get a stamp from your LPAT coordinator. The average stamped bill is seen by 875 people – which makes stamping a highly-effective way to get the message out about how money in politics is corrupting our government.

Get involved in New Hampshire’s movement to #StampMoneyOut of politics.  Join our Facebook group at www.facebook.com/groups/NHStampede or Follow us at @NHStampede.


US is STILL Redistributing Wealth to the Rich

35BillionFriday’s Motley Fool had an eye-opening article about $35.5 billion of stock buybacks recently announced by Big Banks.

That’s $35.5 billion of profits being “returned to stockholders” rather than being used to pay bank employees a living wage. Yes, these days almost one-third of bank tellers receive public assistance (including food stamps, Medicaid, welfare, EITC).

Yes, that’s our tax money at work: “State and federal governments pay nearly $900 million each year to support bank tellers on these programs.”  At the same time Big Banks are “returning” billions upon billions to “stockholders” – including the very same corporate insiders who decide how much money will be spent on buybacks, and how much on wages. (Wondering how many shares these “insiders” own? Click on these links, then scroll down: Citigroup; Bank of America; JP Morgan.)

That’s $35.5 billion going up the economic ladder, rather than being used to pay workers a living wage.

And that’s just from nine banks. Goldman Sachs has predicted that – this year alone – US corporations will spend $707 billion buying back their own stocks.

That’s money that could be used to create jobs. Or pay employees a living wage. Or restore the health insurance and pension benefits that have been stripped away during the past 20 years. Or invest in new factories, or research and development.

Or, gosh. It could wipe out the entire federal deficit. If only corporations were still paying taxes at the same rates they paid in the 1950s, 60s and 70s… rather than “returning” all those billions to investors.

Read more about stock buybacks here.


Note to readers: you may have noticed, it’s been a while since I’ve blogged here at NH Labor News… and that’s because I’m now working for StampStampede.org. The Stampede is tens of thousands of Americans legally stamping messages on our nation’s currency to #GetMoneyOut of Politics. As more and more stamped money spreads, so will the movement to amend the Constitution and overturn Citizens United.

Stamp_StampedeYou can get your own stamp online at www.stampstampede.org. Or, if you’re a member of CWA, you can get a stamp from your LPAT coordinator. The average stamped bill is seen by 875 people – which makes stamping a highly-effective way to get the message out about how money in politics is corrupting our government.

Need motivation to stamp?  Just think about Citigroup, which spends millions of dollars each year on lobbying, and millions more on political contributions (to both parties)… and, oh, wait! There are also 27 members of Congress who themselves own stock in Citigroup. Now, think about last December’s Cromnibus legislation, which included a provision written by Citigroup lobbyists leaving taxpayers on the hook for another Wall Street bailout.

And now… they’re “returning” $7.8 billion of profits to shareholders (rather than, say, rehiring some of those 50,000 workers who were laid off during the last Wall Street meltdown).

It’s time to #GetMoneyOut of politics and take back our government.

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