Several large banks planning significant share repurchases will have to delay them because of a recent Securities and Exchange Commission guideline, a prominent Wall Street analyst said.
The SEC's professional accounting fellow, Mary Gokar, said in a speech last month that the commission probably would reject companies' plans to repurchase shares in the six months following a pooling-of-interest merger, reported Ronald I. Mandle, a bank analyst at Sanford C. Bernstein & Co.
Chase Manhattan Corp., First Chicago NBD Corp., NationsBank Corp., and PNC Bank Corp. all could be forced to delay share repurchases to accommodate the new SEC position, Mr. Mandle predicted.
Prior to the SEC statement, many observers assumed a three-month wait following a pooling merger was satisfactory.
In January the SEC ruled First Bank System Inc. would have to suspend its share repurchase for two years following its then-pending purchase of First Interstate Bancorp. The ruling left many banks confused on what period was necessary between the conclusion of a merger and a share repurchase program.
The SEC's First Bank decision was based on the bank's repeated statements before the conclusion of the pending merger that it planned a massive repurchase, Mr. Mandle said. The merger fell apart, and First Interstate plans to merge with Wells Fargo & Co.
The SEC has repeatedly said pooling-of-interest mergers and share repurchases cannot be connected.
In a pooling of interest, the acquirer issues stock to the acquired company's shareholders in a tax-free exchange. If the acquirer starts repurchasing shares soon after the merger, this could be viewed as an indirect cash purchase. Such a purchase would be subject to taxes and create good will, an intangible asset that must be amortized.
For major banks that have undertaken recent mergers and are likely to repurchase shares, the new SEC position is not a major setback, Mr. Mandle said.
"While this puts off a source of support for the stock for three months, it does not change the ultimate amount of dollars that can be committed to repurchases, nor the total time over which such buy-backs occur," Mr. Mandle said.
"If a company wanted to buy back $2 billion by the end of 1997, waiting to start until July 1996 instead of the beginning of April should not prevent the achievement of the time and dollar targets."
The banks Mr. Mandle cited have not as yet announced their plans to repurchase stock, but most on Wall Street expect the companies to do so.