Comerica Inc.'s stock rose sharply on news of an expanded buyback program and the sale of its Illinois unit to ABN Amro North America Inc. for $190 million.
Shares closed at tk up a $1, on a generally sluggish day for bank stocks.
The Detroit-based bank plans to repurchase up to 15 million shares, or about 12.7% of its outstanding common stock. The share buyout is a substantial increase from Comerica's 300,000 share buyback program last year.
The warm welcome from the market for Comerica's buyback echoed the reaction to announcements of major stock repurchase programs at such banks as BankAmerica and Citicorp.
It also underscored a preference among investors for companies that return value through buybacks over those that attempt to grow earning assets through acquisitions.
Based on a study of 30 banks that have announced buybacks, Raymond James & Associates analyst Richard X. Bove estimates the typical company's stock rises 3.2% in the five days after the announcement. The share price rises 6.5% on average after 30 days and 13% in the 90 days after announcing buybacks, he said.
"We checked that against a group of stocks where there were acquisitions and we could tell there was a difference," said Mr. Bove. "Companies that offer buyouts have significantly better performance in their stock."
Charles M. Vincent, analyst with PNC Investment Management and Research, said buybacks are a consequence of low growth and excess capital in the banking industry.
"The question is how will you reward your shareholders? And the way to do it is a share buyback," he said.
Often, a buyback is seen as a way to improve the return to shareholders. By reducing the number of shares outstanding, the buyback boosts the return per share.
Comerica's yearend return on equity was merely average, at 16.46%, Mr. Vincent said.
Separately, Capital One Financial Corp.'s stock rose almost 5% on approximately twice average daily volume.
The stock gained $1.25 in afternoon trading, reaching $27.25, just short of a 52-week high of $27.375.
David Berry, a bank analyst at Keefe, Bruyette & Woods Inc., said Capital One was due to catch up to other credit card specialists whose shares have gained more than 20% since yearend.
Capital One's stock has gained only 9%.
Separately, Bankers Trust New York Corp. continued to make strides, gaining $1 to $70.