Big-Bank Stock Repurchases Rebounded in 4th Quarter

Some of the largest banks returned to the market to repurchase their shares during the fourth quarter, reversing a downward trend, market experts said.

The top 25 banks bought back $2.6 billion of shares in the fourth quarter, up from $1.9 billion in the third quarter, according to a survey by Keefe, Bruyette & Woods.

The largest 25 banks had repurchased $3 billion in both the first and second quarter of last year.

Stock repurchase programs, which enable banks to use excess capital, had hit a low point in the third quarter last year as the stock market swooned, noted Keefe analyst Marni Pont O'Doherty.

Some of the biggest repurchasers in the fourth quarter included Citigroup, which announced it would repurchase $1.1 billion; First Union Corp., $618 million; National City Corp., $340 million; and U.S. Bancorp, $240 million;

The upswing of share buybacks may signal that an even larger increase in activity is on the horizon.

"I would not look for a real acceleration of buyback activity in the first half of the year, but there will likely be much more in the second half," Ms. O'Doherty said.

The surge in buyback activity may happen even sooner than that, said bank analyst Joan T. Goodman of the Pershing division of Donaldson, Lufkin & Jenrette Securities Corp.

"The investment public is nervous about Brazil, Russia, and China, meaning that bank stock prices are depressed" Ms. Goodman said. "This is the time when banks-especially those that don't have the foreign exposure- will accumulate some shares because of the low prices."

Banks are also likely to repurchase because their capital levels are high and "they're looking to invest their money," Ms. Goodman added. "What better place to put your money than in your own investment?"

Some banks that announced buyback programs in January are U.S. Trust, which said it would repurchase two million shares, Wells Fargo, as much as eight million; and Republic New York Corp., five million shares.

Analysts and investors look upon buybacks favorably because it is one of the safest ways a bank can deploy its capital.

"It is much better to see an epidemic of the buyback programs than an epidemic of " banks making loans, said analyst James Schmidt of the Hancock Advisors.

Buyback programs are also better than an overpriced acquisition, said analyst Raphael Soifer of Brown Brothers Harriman."There's been plenty of that, with some notable examples last year."

Still, to some observers the increase in buyback activity suggests that banks have become too comfortable with the relatively risk-free capital management tool.

"It is doubtful that share repurchases with go away because so many investors clamor for them," said Carole Berger, a hedge fund manager who invests in banks stocks. "However, banks could destroy shareholder value if they repurchase too many shares" by hampering net income growth.

"I don't think we are that point yet," said Ms. Berger, who wrote a report on the subject in 1997, when she was a sell-side analyst at Salomon Smith Barney. "But I think that as the economy slows, banks have to ask themselves what their net income growth rates are."

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