Amid Dividend Talk, Stock Repurchases Climb

As verdicts on dividend increases approach — bank executives have said they expect word from the Federal Reserve on their capital proposals in late March — share repurchases have already started to tick up.

Among a group of 15 of the largest banking companies, stock buybacks dropped to next to nothing at the beginning of 2008, and dividends on common shares followed about a year later (see charts).

But in the third quarter, repurchases by the group jumped to about $2.24 billion, mostly because of $2.18 billion JPMorgan Chase & Co. spent to offset issuance to employees under incentive awards. (JPMorgan Chase's buybacks fell to $685 million in the fourth quarter.)

In more prosperous times, buybacks roughly equaled dividends as a means of delivering earnings to shareholders, and U.S. Bancorp has said it intends to resume repurchases at the same time as it boosts its dividend.

Overall, from 2005 through the second quarter of 2007 — that is, before profits buckled and collapsed as the crisis set in and the economy entered recession — large institutions routinely channeled most or all of their net income through dividends and buybacks, with lower payout ratios generally associated with more aggressive growth.

Payouts exceeded net income at Huntington Bancshares Inc. and U.S. Bancorp during the period, for example, while their asset growth rates were relatively small. Low payout ratios at PNC Financial Services Group Inc. and Capital One Financial Corp., meanwhile, accompanied major expansions. (Exceptions include Hudson City Bancorp Inc., whose $4 billion second-step conversion gave it the resources to return massive sums to shareholders and simultaneously pump up its balance sheet, and Regions Financial Corp., which maintained a high payout ratio as it doubled in size with the help of an all-stock deal for AmSouth Bancorp.)

In a conference call last month, Jamie Dimon, JPMorgan Chase's chief executive, reiterated that his company aims to return to a dividend equal to about a third of earnings, but said that he prefers not to "pay dividends at all so we can use it for some other purpose down the road."

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