Big banks are reviewing their share buyback programs as they head into the new year, with several unveiling plans to increase payouts to shareholders after a cautious 2022.
Executives at JPMorgan Chase and Wells Fargo, which halted buybacks in the second half of the year, said in their latest earnings calls that they expect to resume buybacks this quarter. Bank of New York Mellon announced a $5 billion buyback plan after pulling back sharply last year.
And at Bank of America, whose slowdown in buybacks in 2022 was less pronounced than at its competitors, Chief Executive Officer Brian Moynihan said capital is “well above” minimums required by regulators and gives him flexibility for buybacks. .
“We’re back in the game,” Moynihan said on the Charlotte, North Carolina company’s earnings conference call on Friday.
The revival of big bank buybacks is a boon for investors. Although they continued to pay dividends last year, banks scaled back their buyback programs for a variety of reasons. Some faced higher capital requirements after the Federal Reserve’s stress tests as concerns about the economy mounted and interest rates rose sharply. they crushed their bond portfolios.
Rate outlook has stabilized as Fed kicks off taking a slower path in their rate hikes. Uncertainty about the economic outlook persists, but renewed buybacks indicate banks are bracing for a “short, shallow downturn” rather than a more severe downturn, said Kenneth Leon, director of equity and industry research at CFRA.
“I think the worst case and catastrophic scenarios are being taken off the table,” Leon said.
The exception in Friday’s buyback rally was New York-based Citigroup. Chief Financial Officer Mark Mason told investors that Citi will “remain on pause and continue to make that decision quarter by quarter.”
The bank has been bolstering its capital buffers after the Fed raised its required minimums by 1 percentage point. Citi hit its 13% target for its Tier 1 common equity ratio during the fourth quarter, but the company’s expectations of a temporary impact from its current international ratio restructuring explain some of the current doubts.
“As soon as we can do buybacks, we will,” Mason said. “I mean, that’s part of the way we deliver value to our shareholders.”
BNY Mellon had a sharp drop in buybacks last year, buying back just $124 million worth of shares in 2022 compared with $4.5 billion the year before, according to analytics firm VerityData. The trust bank’s bond portfolio suffered last year as a result of the Fed’s anti-inflation efforts, with rate hikes causing losses across the bond market.
BNY Mellon ended the year “comfortably above our capital management targets,” giving it flexibility to buy back shares, chief executive Robin Vince said.
The bank’s board of directors approved the $5 billion program, although its timing and amount of activity “is subject to a number of factors, including our capital position and prevailing market conditions,” Chief Financial Officer Emily Portney said.
JPMorgan Chase, which also faced higher capital requirements after the Fed’s stress tests, said its strong earnings helped it hit its internal target a quarter earlier than expected. Chief Financial Officer Jeremy Barnum said analysts should expect about $12 billion in buybacks this year, but noted that buybacks are “always at the bottom of our capital hierarchy” as he thinks about how to deploy excess capital.
“If we have better uses for the money, those will come first, and the timing and conditions of how much we do when is entirely at our discretion,” Barnum said.
Wells Fargo also expects to resume buybacks after taking a breather last year and has “substantial capacity,” Chief Executive Charlie Scharf told analysts, though he also noted that any decision would be based on market conditions.
Banks are also preparing for potential capital increases under the new Fed vice president for supervision, Michael Barr, who has indicated there is room for capital requirements to increase.
But Wells Fargo’s chief financial officer, Michael Santomassimo, said any change to capital rules “isn’t going to happen overnight” and that the bank has considerable cushion compared to its current standards.
“We are well above our current regulatory minimum and the buffers that go into there,” Santomassimo said. “So we have a lot of flexibility regardless of any outcome.”
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