The reasons for this value destruction is simple. The company´s overall cost of capital represents a weighed average of the cost of debt plus the cost of equity. After-tax cost of debt is less than the equivalent cost of equity, often far less.

So buying back expensive equity with lower cost overall corporate capital means a deficit on every purchase. Comparable to buying a dollar bill for $1.20.

Trying to recover from this gaffe, Mr. Banker has another suggestion, also self-serving. And also destructive to his client company´s value in many instances.

Increase cash dividend payout. But unless your company is a sleepy utility (which tend to be valued like bonds), declaration of an increase in the cash dividend signals to the financial community that you don´t have better things to do with your funds.

You might as well erect a twenty foot sign on the company headquarters building declaring, "We are incompetent and don´t know how to grow the business, and lack the ability to find future high-return opportunities." Also shrewd.

The financial community´s other perception is that management flunked Economics 101. Why else would someone give away funds that cost 7-10% for absolutely nothing?

Suddenly, paying $1.20 to buy a dollar bill doesn´t look so bad after all, by comparison.
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