Stock repurchase programs by banks, once universally lauded on Wall Street, have recently drawn a more critical response from analysts.

Veteran bank analyst Carole S. Berger of Salomon Brothers Inc. points to several banking companies whose buyback programs are producing less than stellar results.

Those banks include CoreStates Financial Corp.; SunTrust Inc.; National Commerce Bancorp, Memphis; and Huntington Bancshares, Columbus, Ohio.

"Aggressive balance sheet leverage to retire shares is, in our opinion, of questionable value for these banks," Ms. Berger wrote in her new report, titled "The Shrinking Value of Share Repurchase."

Based on Salomon's universe of 50 banks, Ms. Berger noted that the internal rate of return of share repurchase activity has fallen to 19%, from 40% to 50% a few years ago.

Banks that issue debt to buy back their own shares-a practice many took up shortly after issuing tons of trust-preferred securities-have an even lower internal rate of return, 14.2%.

The industry's cost of capital is generally 13% to 14%, the report noted, meaning that the internal rate of return is only modestly above a bank's typical cost of capital.

However, if CoreStates, SunTrust, National Commerce, and Huntington were to fund their share repurchases with debt, their returns would be less than 12%, she noted. Without balance sheet leverage, returns on average are 15%.

"We are hopeful that management" is "well aware of the economics of share repurchases and will slow or even eliminate share repurchase programs in favor of other uses of capital, if their internal rates of return fall below their cost of capital," said Ms. Berger.

In a time of skyrocketing bank stock prices and trailing return on equity ratios, such a scenario ultimately would hurt shareholder value, warned Ms. Berger.

Without leveraging the balance, National Commerce generated a 15.8% internal rate of return on its share repurchase program; CoreStates, 14.5%; SunTrust, 15%; and Huntington, 16.6%.

National Commerce, CoreStates, and Suntrust need nine years to break even on their share repurchase programs;Huntington requires seven years.

The average for Salomon's 50 banks was a 19.3% internal rate of return and seven years to break even.

Ms. Berger added that banking companies that buy back shares and leverage their balance sheets are courting even more trouble.

"We believe the market completely looks through any attempt at pure leverage," wrote Ms. Berger. "The market understands that there is no increase in franchise value created by leverage and that only risk has increased."

Criticism of share repurchase programs, which are meant to boost earnings per share and subsequently share price, is not uncommon.

Analysts became much more vocal about the strategy when the number of shares repurchased by the top 25 banks in the first quarter hit a historic $11.5 billion worth.

Repurchase programs, analysts moan, are becoming more of a fad than a meaningful way to deploy capital and advance shareholder value.

Yet Ms. Berger acknowledged that returns - no matter how diminished - are still returns.

In fact, she noted, Bankers Trust New York Corp.; Pacific Century Financial Corp., Honolulu; Union Planters Corp., Memphis; First Union Corp., Charlotte, N.C.; State Street Corp., Boston; J.P Morgan & Co.; and Citicorp are still generating fairly high internal rates of return.

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