Banking

Banks can repurchase shares again. Will they?

The nation’s largest banks are once again permitted to repurchase shares of their own stock. Now the question is, which banks will resume buybacks and when?

As of midday Monday, just a handful of the 34 banks subject to the Federal Reserve’s six-month freeze on buybacks had made public statements about their plans to repurchase shares in coming months. JPMorgan Chase, the largest U.S. bank by assets, provided the most details, saying it would commence a $30 billion buyback plan during the first quarter. The timing of the repurchases and the exact amount to be repurchased will be subject to “various considerations.”

JPMorgan Chase intends to buy back as much as $30 billion of its stock starting next quarter.

Bloomberg

“Our highest priority and best use of capital continues to be supporting our clients and driving an inclusive economic recovery,” JPMorgan Chairman and CEO Jamie Dimon said in a news release. “We will continue to maintain a fortress balance sheet that allows us to safely deploy capital by investing in and growing our business, supporting consumers and businesses, paying a sustainable dividend and returning any remaining excess capital to shareholders.”

Citigroup, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street said they intend to start buybacks in the first quarter, but did not say how many shares they will buy.

Since the end of June, the 34 banks that are subject to the Fed’s stress tests have been unable to repurchase shares or increase dividend payments to shareholders beyond the levels paid out in the second quarter of this year. The Fed put the limits in place to ensure banks would have enough capital on hand to manage economic challenges posed by the coronavirus pandemic.

But the Fed said Friday that banks are free to resume repurchases after it conducted the first-ever “midcycle” stress tests, a supplemental exercise that incorporated “severely adverse” and “alternative adverse” scenarios that gauged banks’ ability to withstand some of the economic uncertainties related to the pandemic. The results of those tests were released Friday and showed that all 34 banks would have sufficient capital to endure a severe pandemic-related downturn, though some would fare better than others.

The Fed said that while banks can resume buybacks, the amount will be limited to income earned this past year. Dividend payouts, meanwhile, remain capped at second-quarter levels.

Industry observers say the Fed’s decision to loosen restrictions on buybacks was unexpected.

“The big surprise was that the Fed is allowing limited repurchase in [the first quarter],” Piper Sandler analysts wrote Monday in a research note. “While the move by no means signals a return to pre-COVID capital return levels, we view it as an important victory for the group and one that restarts the repurchase process earlier than many investors had anticipated.”

Bank of America, the second largest bank in the country, did not issue a statement about its plans. But on Monday a spokesman referred questions back to Chairman and CEO Brian Moynihan’s recent comments that the bank will resume buybacks “as soon as the Fed allows.”

The bank will provide more information after first-quarter earnings, the spokesman said.

So too will Well Fargo. In a news release after the Fed’s announcements, CEO Charlie Scharf said “returning capital to shareholders remains a priority” for the bank.

The promise of share repurchases on the horizon appears to be going over well with investors. As of Monday afternoon, the KBW Bank Index, a collection of 24 large and regional banks, was up more than 2% while individual bank stocks such as JPMorgan and Bank of America were up 4.5% and 4.2%, respectively.


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