5 Big Bank Stock Buybacks

Increases in bank dividend payouts have been on the rise since the Federal Reserve's announcement of the Comprehensive Capital Analysis and Review, or "stress tests." Dividend increase announcements got most of the buzz with the release of the results.

JP Morgan Chase
JP Morgan Chase

However, bank announcements of buybacks as a way of returning capital to shareholders were just as prolific.

Buybacks are expected to make up two-thirds of payouts in 2011 and their significance should not be overshadowed by dividend payouts, according to analysis done by Goldman Sachs.

"For JPMorgan Chase, Wells Fargo, and State Street, over two thirds of the announced capital returns are expected to come in the form of a buyback," said analysts Richard Ramsden and Christopher Neczypor in a note.

"We believe an additional element of the bank capital plans was the intention to repurchase trust preferred securities."

The aggressive buybacks have even led Standard & Poor's taking a close look at banks' share buyback programs as possibly weakening balance sheets.

Part of the reason banks are boosting their repurchasing programs is because in 2013 banks with assets greater than $15 billion can no longer include trust preferred as part of their Tier One capital as required by Dodd Frank. The largest 14 banks have almost $100 billion of trust preferred outstanding, so the scramble to pick those shares up is on, according to analysts at Goldman.

Here are is a list of the biggest banks that will be repurchasing shares in 2011.

JPMorgan Chasewas given approval by the Federal Reserve to repurchase $15 billion in shares.

The new program will replace the current $10 billion program, which had $3.2 billion remaining.

"Our repurchase estimates for 2011, 2012 and 2013 are $3.7 billion, $17.9 billion, and $18 billion, respectively," said KBW analysts Frederick Cannon and David Konrad in a note.

"We remain comfortable with our buyback assumptions despite being over the current authorization.”

The KBW analysts believes that the board will ask the Federal Reserve to increase their capital plan in 2012.

As CEO Jamie Dimon promised in the bank's investor conference he did boost the dividend to a quarter a share.

"We do not think buying back stock is giving back to shareholders," said Dimon at the JPMorgan's annual investor conference. "I like buying the stock a lot less at $50 than at $30."

Wells Fargo announced plans to repurchase $6 billion in shares from its original repurchase plan of $1 billion of common stock. The bank's orginal plan had $455 million outstanding, according to KBW analysts.

Wells Fargo
Wells Fargo

"We view this repurchase amount as well above investor expectations, which called for a buyback of approximately $2 billion or 60 million shares," said Goldman analysts.

"We had anticipated that the company would be more conservative in tis dividend increase in order to redeem callable TruPs [Trust Preferred Securities] outstanding. We were wrong," said KBW analysts in a note.

"There was no trade-off between increased dividends and TRuPs redemption and WFC wil be more aggressive in deploying capital than we expected."

KBW analysts expects Wells Fargo will start repurchases in the second quarter of 2011 to try to regain as many TruPs shares before Dodd Frank's capital deadline kicks in.

"While Wells Fargo's dividend appears in-line with expectations, we highlight that this is consistent with plans to reinstate capital returns and begin repurchasing approximately $12 billion of TruPs before the phase out period begins in 2013," said Goldman analysts in a note.

PNC Financialannounced that its capital planwas accepted by the Federal Reserve, however the bank did not announce it would increase its plan. The board may decide to raise this program and the quarterly dividend when they meet on April 7, 2011.

Analysts anticipate that PNC Financial will at the very least continue its repurchase program. Its existing program allows it to repurchase up to 26 million shares worth $1 billion.

KBW analysts expect that the bank will raise its dividend to 35 cents per share from 10 cents a share in the second quarter of 2011.

"We believe there may have been investor skepticism surrounding the potential results of PNC's capital plan, largely stemming from confusion around PNC's ownership position in BlackRock as it relates to the new Basel III capital rules," said KBW analysts.

The Federal Reserve did not object to Bank of New York Mellon's dividend increase and share repurchase.

Goldman analysts expect that the bank will begin repurchasing shares during the second quarter of 2011, while KBW forecasts that the bank will begin repurchasing shares in the third quarter of 2011.

The bank's existing buyback program allows it to repurchase about 33.8 million shares or $1.1 billion.

"We expect Bank of New York Mellon will increase its quarterly dividend to 15 cents a share from nine cents a share. We also model for about 10 million shares per quarter, or about $325-$350 million per quarter of buyback staring in the third quarter of 2011 and continuing into the fourth quarter of 2011," according to KBW analysts.

State Streetannounced buyback plans of $675 million, or about 15 million shares. Along with buybacks, it increased its quarterly dividend to 16 cents a share from a penny.

The Federal Reserve gave State Street approval to start repurchasing shares at any time. This will be its first share repurchase since 2008. The announcement of dividend and buyback increases led Standards & Poors to upgrade State Street to "Stable," from "Negative," due to the success of its restructuring.

"We are forecasting $16 million shares to be repurchased toward the end of 2011 . . . given Tier 1 Common pro forma for Basel III of 9.4 percent at year-end 2011, some investors may be modestly disappointed with the size of the buyback," said KBW analysts.


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