Capital allocation is a significant function for company directors. How much of the company’s profits gets reinvested in the business rather than distributed to shareholders through cash dividends or share repurchases is a critical decision companies must make. Boards of directors typically approve a dividend policy and precise amounts for each quarter: Everyone knows that cutting the dividend will result in a sharp decline in the share price.
Yet in many companies, decisions about the level and timing of share repurchases are left to management. That stems partly from differences in legal requirements: The board must formally approve the amount of the company’s quarterly dividend but not its repurchases. Moreover, the implementation of the repurchase program is heavily influenced by the company’s actual cash flows.
Read the rest at sloanreview.mit.edu
Senate Republicans are voting to repeal the Labor Department’s recent rules that would have expressly allowed states and cities to sponsor a type of individual retirement account, called an automatic IRA. These votes will rescind those rules, because they already have been rejected by House Republicans and the administration supports rescinding them.
While Republicans objected to a patchwork of state-sponsored retirement plans, Congress should promptly pass a federal automatic IRA invested by the private sector. This vehicle, developed by conservatives, is the most feasible way of substantially increasing retirement savings in the U.S.
Read the rest at pionline.com
While the Congressional efforts to reform America’s health care system fell apart last month, the Trump Administration can learn important lessons for its next legislative battle: corporate tax reform. Here are five key guidelines.
FIRST, DON’T TRUST HOUSE REPUBLICANS TO DRAFT A BILL.
House Republicans could not muster a majority of their own party for their healthcare bill, so the White House should draft its own corporate tax bill — without the border adjustment tax (BAT) that House Speaker Paul Ryan has advocated. Although the BAT would exempt from US corporate taxes all exports by US companies, it would be fiercely opposed by US retailers and local manufacturers, since it would end their ability to deduct the cost of imported goods or services from their corporate tax payments. What’s more, these opponents do not believe the economists who claim that the BAT would send the price of imports downward by 20% — because these economists predict the US dollar will appreciate by an equivalent amount.
Read the rest at brookings.edu
Jay Clayton, the newly nominated chairman of the Securities and Exchange Commission, is slated to appear before the Senate Banking Committee on March 23 to begin his confirmation process. He should resist the rising clamor to stop quarterly reporting by U.S. companies, despite the efforts by some politicians and investment professionals.
Critics of quarterly reporting argue that it unduly focuses corporate executives on maximizing profits over the short term — usually defined as the next three months. Instead, these critics argue that shifting to semi-annual reporting would lead corporate executives to make longer-term business investments — usually defined as three to five years.
Read the rest at marketwatch.com
UK firms manage approximately L1 trillion in assets for European investors outside of the UK. With the Brexit negotiations slated to start this month, the UK Investment Association has raised serious questions about whether those assets could be taken away from UK asset managers – especially given Prime Minister May’s prioritization of immigration limits over capital markets.
However, even if the UK does not obtain preferential access to the EU’s capital markets in the Brexit negotiations, UK firms can continue to manage assets for EU clients, just like other non-EU firms including many US money managers. The two key strategies employed by non-EU asset managers have been: indirect passporting and regulatory equivalence.
Read the rest at realclearmarkets.com
Although Donald Trump claims that his forthcoming tax plan will be “phenomenal,” he is in truth not likely to propose something really new.
Before the election, Trump put forth a broad tax plan and then a narrower plan. But even the narrower plan created a budget deficit of roughly $3 trillion to $4 trillion over 10 years, according to the dynamic scoring of the independent researcher Tax Foundation. That steep increase in the national debt would present major challenges, given rising interest rates and much larger budget pressures from entitlement programs.
Read the rest at marketwatch.com
President Trump recently issued an executive order directing the Treasury Secretary to report, within 120 days, on what laws and rules promoted or inhibited six core goals of financial regulation: investor choice, economic growth, and international competitiveness, as well as more traditional goals of reducing risk, increasing accountability and preventing bailouts. Though the executive order did not name the Dodd-Frank Act that aims to reform Wall Street, President Trump said: “We expect to be cutting a lot of Dodd-Frank, because frankly, I have so many people, friends of mine that had nice businesses, they can’t borrow money.”
Despite this Presidential rhetoric, Dodd-Frank is not going to be repealed – that would require 60 votes in the Senate, and the Republicans have only 52. But a Congressional majority can repeal specific aspects of the law that was enacted in 2010 following a financial crisis that nearly destroyed the U.S. financial system, and new agency heads can implement a lot of financial deregulation. In specific, we are likely to see new restrictions on the Consumer Financial Protection Bureau ( CFPB ), more flexibility for the largest financial institutions and substantial regulatory relief for smaller banks.
Read the rest at fortune.com
On Friday, February 3, President Trump issued an executive order directing the Secretary of Treasury to report, within 120 days, on whether governmental rules and policies promote or inhibit the order’s Core Principles for Financial Regulation. These generally stated Principles stress investor choice, economic growth and international competition as well as the more traditional goals of financial regulation such as preventing bailouts, analyzing risk and increasing accountability.
Although the executive order did not mention Dodd-Frank by name, President Trump made clear: “We expect to be cutting a lot of Dodd-Frank, because frankly, I have so many people, friends of mine that had nice businesses, they can’t borrow money.” By contrast, the Federal Reserve data show that total loans and leases by banks grew by almost 7% per year during the last three years.
Read the rest at brookings.edu