The $30 Billion Question: Are Bank Buybacks Worth It?

Good morning. Goldman Sachs reported before the bell today and beat across the board. Tomorrow, JPMorgan, Wells Fargo, Citigroup, and BlackRock all report on the same day, which makes it the most concentrated financial sector reporting day of the year. Morgan Stanley follows Wednesday.

Alongside those earnings, every one of these banks will announce how much capital they plan to return to shareholders through buybacks and dividends. The combined number will be somewhere north of $100 billion on an annualized basis. It's the largest capital allocation decision these companies make, and it gets about thirty seconds of airtime on the earnings call before the analysts move on to net interest margin.

Today I want to explain what the academic research actually says about buybacks, because it's more interesting and more contested than either the critics or the defenders admit. Then I want to show you how to use that research to evaluate whatever the banks announce this week.

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THE EVIDENCE

The Buyback Debate

There are two popular narratives about stock buybacks, and both are wrong.

The first narrative says buybacks are inherently good. They return capital to shareholders, signal management confidence, reduce share count, and boost earnings per share. Wall Street loves this story because it's clean and simple and it makes the stock go up in the short term.

The second narrative says buybacks are corporate looting. Instead of investing in workers, R&D, and factories, companies funnel cash to shareholders and executives. Senators Sanders and Schumer wrote a New York Times op-ed calling buybacks "one of the most self-serving things that corporate America does." The 2022 Inflation Reduction Act imposed a 1% excise tax on repurchases as a down payment on this worldview.

The academic evidence supports neither story fully, and that's what makes it useful.

What the large-sample evidence actually shows. Guest, Kothari, and Venkat published a study in Financial Management in 2023 that examined three decades of buyback activity across the entire U.S. stock market. They tested the most common critiques: that buybacks manipulate prices, that they inflate executive compensation, and that they crowd out productive investment.

The findings were nuanced in a way that neither side liked. Repurchases accounted for such a small fraction of daily trading volume in most stocks that they couldn't meaningfully move prices. The price appreciation following buybacks was modest and didn't reverse, which suggests the small bumps reflected genuine signaling rather than manipulation. And companies that repurchased stock heavily maintained steady investment levels in R&D and capital expenditures throughout the study period. The firms that didn't buy back stock actually invested more aggressively, but they were also less profitable. Many were losing money.

If you stopped reading there, you'd conclude that buybacks are benign. Profitable companies generate more cash than they can reinvest productively, so they return the excess. That's textbook corporate finance.

But the story has a second chapter.

The innovation cost. Nguyen, Vu, and Yin published a study in Accounting & Finance in 2020 that took a different approach. Instead of looking at aggregate investment levels, they looked specifically at innovation output: patents filed, citations received, and the novelty of the research produced. They used two identification strategies, difference-in-differences and instrumental variables, to establish causation rather than correlation.

Their finding: share repurchases causally reduce firm innovation. Not just correlated with it. Cause it. Companies that repurchased stock produced fewer patents, fewer highly-cited patents, and less original research than matched firms that didn't repurchase.

This doesn't contradict Guest et al. Both can be true simultaneously. Total R&D spending may hold steady while the quality and ambition of research declines. A company can maintain its R&D budget in dollar terms while shifting that budget toward incremental, low-risk projects that won't challenge quarterly earnings. The dollars stay the same, but the willingness to take long-cycle bets shrinks.

The mechanism matters. When a company commits to large, recurring buyback programs, the cash flow earmarked for repurchases becomes quasi-fixed. It's not technically contractual like a dividend, but the market expectation is just as binding. A CEO who reduces the buyback to fund a speculative R&D program takes an immediate stock hit. A CEO who maintains the buyback and quietly starves innovation sees no penalty for years, until the pipeline dries up and someone writes a case study about what went wrong.

The timing problem. Even if you accept that buybacks are appropriate for companies with limited reinvestment opportunities, there's a separate question: are companies buying at the right price? This is where the research gets uncomfortable.

Milano's work on "Buyback ROI," presented at the 2025 Capital Deployment Roundtable published in the Journal of Applied Corporate Finance, found that companies are remarkably bad at timing their own repurchases. They buy the most stock when earnings are highest and the stock price is most elevated. They buy the least when the stock is cheap. The annualized returns on buybacks, measured by where the stock goes after the repurchase, are often negative. The remaining shareholders who don't sell into the buyback are frequently worse off than if the company had done nothing.

Milano went further. Companies that deploy a greater percentage of their total cash flow toward repurchases, as opposed to organic investment, delivered lower total shareholder returns over time. Not higher. Lower. The companies that investors praise for being "shareholder friendly" through aggressive buybacks are, on average, the ones making the worse capital allocation decision.

The explanation is not mysterious. Earnings peak in the late stages of a business cycle, when stocks are expensive. Cash flow is highest when the stock is most overvalued. The mechanical result is that companies repurchase the most shares at the worst possible time. It's dollar-cost-averaging in reverse.

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HOW TO USE THIS DURING EARNINGS WEEK

When the banks announce their capital return plans this week, here's what to listen for.

1. What's the priority order? Does the CEO describe buybacks as a residual (what's left after investment and balance sheet priorities are funded) or as a headline number designed to impress? Jamie Dimon has been explicit in his shareholder letters that buybacks come last in his hierarchy. Goldman has historically been less explicit about the ordering. The language tells you whether management is thinking about capital allocation as a system or treating buybacks as a marketing tool.

2. Did they accelerate at a peak? Bank stocks have had a strong run. If management increased the buyback authorization into a rising stock price, that's the pattern Milano's research identifies as value-destroying. If they held steady or reduced the pace because they believe the stock is fairly valued, that's discipline. It will be punished in the short term by analysts who want a bigger number. It will be rewarded in the long term by shareholders who benefit from buying at better prices.

3. Where's the organic investment going? JPMorgan spent more than $15 billion on technology last year. Goldman has been investing heavily in its transaction banking and asset management platforms. The banks that are investing in durable revenue sources while simultaneously returning capital are the ones the Guest et al. research identifies as the best long-term performers. The ones that are cutting investment to fund buybacks are the ones the Nguyen et al. research warns about.

4. What does BlackRock's flow data say? BlackRock reports tomorrow alongside JPMorgan. As the world's largest asset manager with more than $10 trillion in assets, their net flow data tells you where institutional money is actually moving. Watch whether inflows favored fixed income (institutions expect rates to fall), equities (risk on), or alternatives (institutional caution). That flow data provides more information about forward capital allocation than any CEO's prepared remarks.

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ALSO THIS WEEK

Goldman Sachs reported this morning. The numbers were strong: $17.55 in earnings per share on $17.23 billion in revenue, beating consensus estimates of roughly $16.50 on $17 billion. Return on equity hit 19.8%. Investment banking fees surged 48% year over year, and equities trading posted record revenue. The firm returned $6.38 billion to common shareholders in the quarter, $5 billion in buybacks at an average repurchase price of $923 per share and $1.38 billion in dividends. That buyback price is worth noting. After the analysis above, ask yourself: at roughly $923 per share, was Goldman buying below intrinsic value, or were they buying into a stock that had nearly doubled over the prior year? That's the Milano question, applied in real time. Investment banking is roughly 20% of Goldman's total revenue, which makes it the most direct proxy for global deal activity among the major banks. The 48% surge in IB fees suggests the deal-making pipeline is converting. Private equity entered 2026 with $3 trillion in dry powder, which is creating deployment pressure that showed up clearly in Goldman's numbers.

March existing home sales release today. February showed 4.09 million in annual sales at a median price of $398,000 with 3.8 months of inventory. The capital allocation angle: housing drives consumer confidence, which drives corporate revenue, which drives the earnings that fund the buybacks we just spent 1,500 words analyzing. If home sales tick up, the consumer is adjusting to 6%+ mortgage rates. If they fall, the rate environment is still constraining household capital allocation, and that flows through to everything.

TSMC reports Thursday. Their capital expenditure guidance is the most important number in the AI supply chain. If they increase spending, it validates the thesis that the AI infrastructure buildout has more years to run. If they hold flat, the marginal dollar of AI capex is shifting from semiconductor manufacturing to data center construction and power infrastructure. Either way, the capital is flowing. The question is where in the value chain it lands.

The Iran ceasefire is collapsing. Vice President Vance left Pakistan on Saturday after a day of negotiations failed to produce an agreement, and President Trump responded by declaring a naval blockade on Iranian port traffic. The Strait of Hormuz remains effectively closed, with roughly 3,200 vessels backed up, including 800 tankers. Oil surged this morning on the news. Brent jumped roughly 7% to above $102, and WTI pushed past $104. For context, oil had settled near $95 on Friday and had crashed 16% on the ceasefire announcement on April 8 before grinding back up through the week as it became clear the strait wasn't actually reopening. Any framework for evaluating capital allocation decisions this week now has to account for triple-digit oil. That reprices borrowing costs, transport costs, input costs, consumer spending, and the math on every deal being financed right now. It also makes the banks' forward guidance on credit quality and loan loss provisioning more important than the backward-looking Q1 numbers.

Tomorrow, I'm grading JPMorgan's capital allocation track record. Five categories. One grade. It's the Scorecard.

Have a good Monday.

Marques

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Research cited: Guest, N., Kothari, S.P., & Venkat, P. (2023). Share repurchases on trial. Financial Management, 52(1), 19-40. · Nguyen, L., Vu, L., & Yin, X. (2020). Share repurchases and firm innovation. Accounting & Finance, 61(S1), 1665-1695. · Clancy, P., Mauboussin, M., et al. (2025). Capital deployment roundtable. Journal of Applied Corporate Finance, 36(4), 62-79. · DeAngelo, H. (2022). The attack on share buybacks. European Financial Management, 29(2), 389-398.

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Marques Blank is the founder of Blank Capital (fractional CFO advisory) and Blank Capital Partners (registered investment advisory). He spent seven years at Northrop Grumman running a $1.6 billion business unit and four years at Citibank in securitized credit. CMA, MBA, Series 65.

This newsletter is for informational purposes only and does not constitute investment advice.