Stock repurchase programs, after falling from favor because of high stock prices, may suddenly be back in vogue in the wake of the market's downdraft.
Repurchases were wildly popular just two years ago, enabling banks to boost their stock prices while simultaneously managing excess capital with virtually no risk. Wall Street analysts were rhapsodic.
But buybacks' luster had recently been dulled by the steep run-up in bank stock prices during the last 12 months.
As a result, the nation's top 25 banking companies shaved their buyback programs to $4.8 billion in the third quarter, down from $7.5 billion in the second and off sharply from the record $11.5 billion in the first quarter, according to Keefe, Bruyette & Woods Inc.
Davis S. Berry, Keefe Bruyette's director of research, said that in addition to high stock prices several major pooling-of-interests acquisitions could be blamed for the third-quarter slippage.
NationsBank Corp. and First Union Corp. - two of the biggest fans of buybacks - had to suspend their repurchase programs temporarily after announcing acquisitions.
Citicorp, another avid buyer of its own shares, repurchased fewer because of a third-quarter restructuring charge, noted Mr. Berry.
However, the decline in buyback programs could be reversed fairly soon, said banking industry analyst Michael L. Mayo of Credit Suisse First Boston Corp.
"If stock prices remain depressed or sell off again, we expect more banks to reload for additional share repurchases," said Mr. Mayo.
Banking companies with some of the relatively cheapest stock prices include Chase Manhattan Corp., BankBoston Corp., and First Chicago NBD Corp. And these banks have "indicated they are willing to continue repurchasing their shares," he said.
One company that took advantage of the recent market declines is Republic New York Corp., which authorized additional buybacks of up to one million shares of common stock Thursday.
"We have tried to buy back over time," said chief financial officer Thomas F. Robards, "but obviously when something occurs to make things abnormally cheap, you want to take advantage of the situation. But fundamentally, we just try to keep a regular program at a stable rate."
There are those, however, who are dubious about banks' rushing to buy back stock aggressively.
"I don't see it," said analyst Mark T. Fitzgibbon of Sandler O'Neill & Partners. "We really haven't seen much of a selloff, and the market has pretty much come back. It's prudent that a bank have a buyback handy in case the market does decline. But I'm just saying we are not there yet."
Michael DeStefano, an analyst at Standard & Poor's Corp., agreed that an increase in buyback programs is not yet justified.
"We believe that if buybacks were to continue it could have a negative impact on banks," Mr. DeStefano said. "We are happy to see stock buyback activity, and we think that it is appropriate, but we would not like to see the industry continue to lever."
But banking companies that take their foot off the pedal of share repurchase programs will not be doing the right thing, argued Mr. Mayo of CS First Boston.
"The main reason we continue to like buybacks," he said, "is that banks historically have deployed their last few dollars at minimal marginal returns, which has come back to bite them."
