Business

Ex-Goldman CEO hits back at Bernie Sanders

Lloyd Blankfein just waded into an escalating brawl over share buybacks.

The former Goldman Sachs CEO took to Twitter on Tuesday to defend the controversial practice of companies buying back their own stock — but his tweet sparked a social media beef with Sen. Bernie Sanders and left Wall Street analysts scratching their heads.

“A company used to be encouraged to return money to shareholders when it couldn’t reinvest in itself for a good return,” Blankfein wrote in his first tweet since July. “The money doesn’t vanish, it gets reinvested in higher growth businesses that boost the economy and jobs. Is that bad?”

Sanders (D-Vt.) soon shot back at the billionaire banker.

“Lloyd Blankfein, the former CEO of Goldman Sachs, is correct that the money from stock buybacks ‘doesn’t vanish.’ It increases the wealth of billionaires like him. Instead of making the very rich even richer, how about increasing wages for American workers. Is that a bad idea?”

Blankfein’s tweet came a day after Sanders and Sen. Chuck Schumer (D-NY) published an op-ed in the New York Times calling for companies to meet certain pro-labor preconditions, like higher wages and paid sick days, before they can return money to shareholders.

Fueled by President Trump’s corporate tax cuts, US companies last year announced a record $1.1 trillion in buybacks, according to Barron’s, doubling the year-earlier total. The previous record for buybacks was about $650 billion in 2007, according to JPMorgan research.

Wall Street insiders got rattled by the fact that Schumer — historically a friend to financial types — was teaming up with Sanders on the issue. Nevertheless, some analysts were confused about Blankfein’s tweet, since buybacks take money out of businesses for the benefit of shareholders.

“I don’t see where he’s correct in that statement. I find that misleading,” Bruce Bittles, chief investment strategist at RW Baird, told The Post.

“The money goes to buy back the stock. It can’t go both places. So either it goes into the buybacks or it goes into the economy.”

A person close to Blankfein said the buybacks support businesses in a roundabout way, by giving the investing class more leeway to put money into fast-growing businesses.

“You’re returning excess capital to your shareholders. Then those people have the choice to invest in new businesses,” the person said.

Buybacks are controversial even on Wall Street, where some economists question their economic benefit.

Last May, Apple CEO Tim Cook got ridiculed by economists when he defended the tech giant’s plan to buy back $200 billion in shares, contending it was “good for the economy … because if people sell stock they pay taxes on their gains.” Buybacks are used partly to duck dividend taxes, they noted.

Larry Fink, CEO of the $6.4 trillion BlackRock, criticized the practice in 2017 for diverting money away from research and development.

“While we certainly support returning excess capital to shareholders, we believe companies must balance those practices with investment in future growth,” Fink said in a letter at the time.

But some analysts said the Democratic proposal could push more risk on companies by investing in less developed businesses that could fail.

“It’s as detrimental to force yourself to use that capital when you don’t really have the opportunity to do it,” Marty Mosby, analyst at Vining Sparks, told The Post.

Many economists say share buybacks largely benefit the wealthy, although the practice does boost pensions and 401(k) retirement accounts that invest in stocks.

The practice was outlawed until the 1980s, since it was seen as a form of stock manipulation.

This isn’t Blankfein’s first foray into a hot-button topic. He has previously criticized Trump for pulling out of the Paris climate change agreement and has spoken out against a travel ban on Muslim countries.

Blankfein, who calls himself a “Former CEO on a gap year” in his Twitter bio, was recently warned by Goldman that the bank could withhold millions of dollars in compensation depending on the outcome of a wide-ranging bribery scandal at the bank.