Question

“JP. Morgan Plans $4.8 Billion Share Buyback Following Pressure From Elliott; The proposed share buyback isn't as large as the one urged by the activist shareholder
Wall Street Journal; New York, N.Y. [New York, N.Y] 13 Mar 2020.
TOKYO—JP. Morgan said it would spend as much as ¥500 billion ($4.8 billion) to buy back up to 7% of its own shares, following plunging stock prices and a pressure campaign from one of the world's most aggressive activists.”
“Stock-Buyback Plans Shrink; The new coronavirus may threaten companies' buyback plans—though a down market could also create a buying opportunity
Wall Street Journal (Online); New York, N.Y. 09 Mar 2020.
U.S. corporations are signalling a reduced appetite for stock buybacks this year, undermining a pillar of support for stocks at a time of heightened volatility.
Companies authorized around $122 billion in future buybacks through February, according to data compiled by equity research firm Birinyi Associates, marking a nearly 50% drop from the same period a year ago and representing the slowest pace in three years…”
Required:

Discuss the benefits of share buybacks. While having lots of firms suspend buybacks under current market conditions, advise with reasonings if JP. Morgan should suspend their share buyback plan?

Answer 1

A stock buyback is a way for a company to re-invest in itself. A stock buyback is one of the ways to return wealth to the shareholders. Companies usually buyback stocks to decrease the number of outstanding stocks which in turn increases the ownership stakes of the stakeholders. The company also buys back its own stock when they feel that the stock is not rightly priced in the market and are discounted too steeply which is the case with JP Morgan in this question.

During the Pandemic, most of the companies are refraining from buying back their stocks because of the following reasons and for the same reasons JP Morgan should suspend their buybacks too:

a.) The stock buyback is a practice that companies usually like to do when they have to reinvest their cash, because of the pandemic many companies haven't been performing financially well to make investments.

b.) As there is a lot of uncertainty in the market at the moment, it is not a wise choice for companies to buy back their shares yet.