What’s my stock worth today?
Given the current times, the situation reminds me a bit of the Great Recession. I am not suggesting — and certainly not hoping — that the COVID-19 situation is similar, but what is similar is that we have external factors which are likely affecting the value of your stock.
There was a bank we valued annually for many years for stock buyback purposes. In 2008, the bank president called me before the valuation was to start and asked whether I thought the valuation price would decrease that year. I told him I thought the question really wasn’t whether it was going to decrease but rather by how much. Based on that response, the bank president said he did not want the bank valued that year. When asked what he was going to do related to setting a price to buy back shares at, he replied, “Oh we are going to buy back shares all right. The price we are going to pay is the price-to-book conclusion you came to last year, adjusted for our current book value.”
What I shared next wasn’t the popular answer, but something important to him and the rest of the shareholders in the bank. I told him I thought if he used that price described, he was overpaying for the stock given current events. Although he didn’t want to see the value decrease, I told him “we can’t just act like nothing has happened.” Sometimes sharing tough news isn’t easy; this was one of those times.
Every board has a fiduciary responsibility to all shareholders — those being bought out as well as those staying. If a bank or holding company is going to overpay for share purchases, that is not fair to those staying. In addition, setting a price too high or too low can impact private transactions. The moral of the story is if you are buying back shares (and are going to continue to purchase shares) and sharing the price you are paying, you likely need to revisit what you are paying for those shares.
As of this writing, I don’t believe your shares have declined in value as drastically as those of many of the publicly traded banks might have, but that could change. Like you, we are waiting to see how severe the effects of COVID-19 are and how long they will last. As I said in 2008, the question isn’t whether the price has decreased but rather by how much.
We need to be fair to all shareholders, and if you and your board have not discussed stock pricing, it should be on your next board agenda.