More than a dozen companies from Dax and more than 20 companies in MDax warned of lower revenues in the last quarter as a result of the coronavirus crisis. So many bad messages in such a short time – it had never happened before. But obviously not all companies see themselves in crisis.

After 8.8 billion EUR in the previous year as a whole, German companies have already bought their own shares from the stock exchange for more than 5 billion EUR in the first four months of 2020. Adidas, Linde, and especially Siemens, stand out in the foreground.

Since most companies are mostly destroying stock, they narrow the supply. Future profits and dividends are distributed in fewer shares. This usually promotes stock prices.

In the second week of April, Wirecard buyback shares for 5.56 million EUR, a week earlier for 8.45 million EUR. Dialysis specialist Fresenius Medical Care (FMC) bought back its own shares for 112.7 million EUR in the first week of April at an average price of 59 EUR. A year and a half ago the stock was worth 90 EUR.

“As a shareholder, you can be happy with that as long as the report is right”, said the expert Philipp Immenkotter of asset manager Flossbach von Storch. The idea behind it all sounds plausible: if stock prices fall, companies will activate their buyback programs, approved by the Annual General Meeting, and at least mitigate exchange rate reductions.

The FMC is unlikely to suffer losses due to a pandemic unless patients with kidney problems delay their vital dialysis treatment due to the fear of being infected with the Covid-19 virus.

But shares are also being bought by companies that are threatened by declining revenue, including Europe’s largest copper producer Aurubis and construction company Hochtief. Both concerns launched their program in March.

Perhaps the most spectacular case is Adidas – and it raises doubts about the importance of such capital measures in the midst of a crisis. Until March 16, the sportswear maker continued to buy back its own shares at a furious pace. In 2018, the company has spent a total of 2.07 billion EUR on this.

The turnaround followed in April: Adidas canceled the previously announced dividend and stopped buying back shares. Even more: the group sent 1,200 of its 7,000 employees across Germany to a government-funded short-term work week and secured a 2.4 billion EUR loan from the state-owned development bank KfW.

“When companies buy their own shares against the backdrop of a sharp drop in prices, it is a sign of shareholder power. But if companies ask for taxpayer money immediately, such behavior is difficult to justify from a moral point of view”, said Philipp Immenkotter.

The European Central Bank’s supervisory authority urges credit institutions to refrain from buying shares in a crisis. While this does not legally bind companies, it is still a clear signal to the overall economy.

Beyond party boundaries, as well as business-friendly political wings, stock buybacks and dividend payments are not well received if companies simultaneously seek state aid. “It is good that the state helps very quickly and without bureaucratic complications. Nevertheless, this is still the money of current and future taxpayers”, says Carsten Linnemann, head of the Union of Small and Medium Enterprises and vice president of the CDU/CSU parliamentary group. “Therefore, we must be very careful not to abuse it”, added he.

The money Adidas spent until March is now missing from the company – in this crisis. On March 11, CEO Kasper Rorsted presented his shareholders with superlatives for the past financial year. The concern reported 2.2 billion EUR in liquidity. Together with a record net profit of just under 2 billion EUR, the fashion brand appears to have enough money for an estimated record dividend of 3.80 EUR per share, with which the group would distribute a total of 739 million EUR.

But as more and more stores closed, production shut down, as did businesses in many countries, the company turned to the state and asked for help. No one knows how long the blockade and the globally-prescribed closure of stores around the world will continue. “The current situation poses serious challenges for even healthy companies”, said Kasper Rorsted, who was still optimistic about the annual data in March.

Siemens buyback program

Despite this negative experience and turnaround at Adidas, Siemens adheres to its program: from 2018 to 2021, the Munich-based company intends to buy back shares for 3 billion EUR – and has already spent 2.3 billion EUR. In the current crisis, the conglomerate has even increased its purchases.

In March and April, Siemens bought its own shares for just under 1.2 billion EUR – most notably in the midst of a stock market crash in March. Against the background of the collapse and the average price, it drops sharply: Siemens bought shares for 116.57 EUR in January, in March it was only 71.91 EUR. “Our program is being implemented because we are in good financial shape, but we always keep a close eye on our liquidity needs”, said a company spokesperson.

How fine the gap between sufficient corporate financing and eventual needs should be due to declining revenue in the face of economic stagnation, says the head of the concern. “I suppose we will feel the effects in the second quarter”, said the CEO of Siemens, Joe Kaeser. “We need to act with clarity going forward, but there is no clarity for now”, added he.

Since the beginning of 2020, Siemens has paid out 4.4 billion EUR, including 3 billion EUR in dividends. However, this did not prevent the company from sending about 3,000 of its 116,000 employees across Germany to the short-term employment program.

Do Dax companies have enough cash?

At the end of the last financial year, Siemens had cash in the amount of 11.4 billion EUR. At first glance, it sounds huge. Only Volkswagen carmakers with 18 billion EUR and Daimler with 16 billion EUR have even more liquidity in Germany. The Adidas example shows how fast money is spent, however. According to Volkswagen CEO Herbert Diess, Volkswagen is now losing 2 billion EUR per week.

Against the backdrop of these rapid losses, the 99.4 billion EUR currently offered by Dax companies in liquidity form is only a temporary buffer. “Most DAX companies have high, albeit not infinite, cash reserves”, said Hubert Barth, the head of EY Germany.

Specialized chemicals company Covestro had only 748 million EUR in cash at the end of the year, while the aircraft manufacturer and maintenance specialist MTU had just over 140 million EUR. According to EY expert Hubert Barth, it is even more important for corporations “to do everything possible now to minimize the drain on funds”.

Some companies have already gone into crisis mode. The two major share purchasers, Allianz and Munich Re, have suspended their buyback programs. SAP announced on April 8 the completion of its 1.5 billion EUR stock buyback program and is not planning a new issue, at least for the current year.