With bank shares falling across the board Monday as investors reacted to last weeks terrorist attacks on Wall Street, many companies announced new or renewed share buybacks aimed at shoring up their own share prices and helping steady the markets.
FleetBoston Financial Corp., the nations seventh-largest banking company, led the way Sunday, announcing a $4 billion buyback, or about 10% of its shares outstanding at current prices. The company said the new buyback authorization, which runs through Dec. 31, 2002, showed confidence in its own prospects as well as those of the financial industry.
Our conviction about the long-term value of our franchise is matched only by our confidence in the enduring strength of the financial industry and markets, Terrence Murray, FleetBostons chairman and chief executive, said in a statement. This move represents an active pledge of our considerable capital to support our beliefs on both fronts.
Others announcing new share repurchases, or reaffirming previously authorized buybacks, included Fifth Third Bancorp of Cincinnati; Bank One Corp. of Chicago; online broker and banker E-Trade Group Inc. of Menlo Park, Calif.; Morgan Stanley Dean Witter & Co. of New York; and New York Community Bancorp Inc. of Westbury, N.Y.
The banking companies joined other large U.S. corporations such as General Electric Co. and Internet equipment maker Cisco Systems Inc. in trying to demonstrate faith in U.S. financial markets through large share repurchases.
Though U.S. markets sank Monday, there was evidence that the buybacks, or at least the perception that companies would be active in the market, as well as measures such as the half-point cut in a short-term interest rate by the Federal Reserve, may have had the desired effect. By midday, most bank shares were down 5% or less, which was in line with, or slightly better than the broader market. (See related story on page 6).
Lori Appelbaum, a banking analyst at Goldman, Sachs & Co. in New York, said she was encouraged by Mondays early market activity, though bank shares may take a while to rebound. I think the markets not going to do a whole lot for some time. [But] in the initial trading days, youre obviously seeing somewhat of a muted reaction, given a lot of support out there for what people have been through, she said.
The flurry of buyback announcements came after the Securities and Exchange Commissions issuance Friday of an emergency order relaxing rules that would normally limit corporate share repurchases. Among other things, companies are free to buy more shares than usual and may do so anytime during the trading day. SEC rules normally prevent companies from trading at the market opening and closing.
The SEC said it was acting to prevent a selloff this week and said corporate share buybacks could be an important source of liquidity in a volatile market.
Though motivated by last weeks tragedy, announcements of fresh buybacks also came as many banks were already preparing new repurchase programs. In a report written before the Sept. 11 attacks, Ms. Appelbaum said the banks Goldman covers had an average of 3% to 4% excess capital available to buy back shares.
Even before the attacks, analysts had been expecting Fleet to announce a major share repurchase. Ms. Appelbaum listed Fleet among a handful of banking companies having the greatest amount of capital available for repurchases; she estimated that the Boston company would be able to buy back as much as 7.8% of its outstanding shares. Sundays announcement from Fleet that it would buy back up to 10% of its shares went even further, and the SECs emergency rules make this easier.
The banks can be in the market all day, and they can buy back all the stock that they want, Ms. Appelbaum said.
Other banking companies on Ms. Appelbaums list included Mellon Financial Corp. of Pittsburgh, which she estimated could buy up to 10.9% of its shares outstanding; Huntington Bancshares Inc. of Columbus, Ohio, (9.2%); FirstMerit Corp. of Akron, Ohio, (8.9%); SouthTrust Corp. of Birmingham, Ala. (5.2%); and First Midwest Bancorp Inc. of Itasca, Ill. (3.7%).
E-Trade Group said its board authorized a multiyear stock repurchase program of up to 50 million shares. We have great confidence in our nation, its economy, and financial system and in the future of our company and its industry, chairman and chief executive Christos M. Cotsakos said in a statement.
Fifth Third, which did not announce how many shares it would buy back, said it was acting to help provide market stability following the tragic events of last week.
Morgan Stanley said it expects to use some or all of about $1 billion remaining in an existing share repurchase authorization.
Bank Ones board approved the repurchase of up to $500 million of stock under a 1999 authorization. This program reflects our confidence in Bank One and in Americas financial services industry and markets, said chairman and CEO James Dimon.
