12 International Financing Review March 21 2020Top news
As US banks back off buybacks,
Rothschild and StanChart step in
People & Markets US banks halt buybacks with more than US$35bn still to buyBY CHRISTOPHER SPINK,
STEVE SLATER, PHILIP SCIPIOTop US banks have put share
buybacks on hold for at least
four months and European
supervisors have told banks not
to use any easing in capital
requirements to reward
investors and by increasing any
type of distribution.
But the Rothschild family is
taking advantage of the market
turmoil to increase its stake in
ROTHSCHILD & CO ûTHEûlRMûFOUNDEDû
by the current generation’s
ancestors, and Standard
Chartered have bucked the
trend and are buying back
shares daily. Both are getting
more bang for their buck at
depressed prices after the slump
in bank share prices.
The Rothschild family owns
just under half of the shares of
Paris-listed Rothschild & Co, but
said it wanted to spend up to
€45m increasing its stake. That
could buy another 3.5% of the
lRM
STANDARD CHARTERED, which is
based and listed in London but
mostly operates in Asia, said on
February 27 it planned to buy
US$500m of its stock this year,
and in the past 14 trading days
its broker JP Morgan has bought
US$138m of shares.
After paying as much as 576p
for shares on March 2, it paid as
little as 401p on Monday. On
Thursday it paid 463p a share –
based on that price it can buy
16% more shares now than
when it started.
Buybacks are valued as a way
to use excess capital to reduce
the number of shares in issue
and thereby lift net asset value
per share and earnings per
share. It is seen as a particularly
good tool when shares trade
below book value, as most bank
stocks now do. Banks also value
THEûmEXIBILITYûITûOFFERS ûASûTHEûTAPû
can be turned on and off.But at the moment, that
switch is mostly being turned
off.
“Supervisory approvals for
buybacks may prove more
DIFlCULTûTOûOBTAINûINûTHEû
changed scenario,” said Scope
analyst Marco Troiano.BYE-BYE BUYBACKS?
Regulators want banks to use
any excess capital to lend to
customers to kick-start
economic growth.
The eight largest US banks –
JP MORGAN, BANK OF AMERICA,
CITIGROUP, GOLDMAN SACHS, MORGAN
STANLEY, WELLS FARGO, BANK OF NEW
YORK MELLON and STATE STREET –
said on Sunday they would
suspend their share
programmes until at least the
end of June to support
customers.
The banks had approval to
buy back US$119bn of stock
from July 2019 to June 2020,
led by a US$30.9bn buyback
for BofA. But they still had
3-1/2 months of the plans to
go.
That means the eight banks
may have still had more than
US$35bn of stock to repurchase.
If each bank was a little more
than 2/3 of the way through
their programmes, BofA and JP
Morgan would have still needed
to buy US$9bn of stock and
Citigroup would have had more
than US$5bn still to buy, which
would have helped support
their shares during the current
rout.THIN PICKINGS
Still, the US buybacks have
dwarfed repurchases in Europe
for the past several years,
helping their stock outperform.
The worry in Europe is that
market turmoil will see hopes of
more stock buybacks dashed for
the foreseeable future, even if
there are some pockets of
activity.
UBS has been buying back
shares and said it considered
“business conditions and any
idiosyncratic developments”
when determining purchases. It
had earmarked SFr450m
(US$465.5m) of buybacks this
year to complete a SFr2bn
programme, and has bought
SFr350m so far this year,
according to a person close to
the bank. The person said UBS
would decide in the summer
whether to do an additional
programme or not.
UBS CEO Sergio Ermotti last
month praised the capital
mEXIBILITYûANDûIMPACTûBUYBACKSû
offered. “Considering our high
cash percentage payout and the
fact that our stock trades below
book value, for me, this is a no-
brainer,” he said.
Rival CREDIT SUISSE said in
December it was planning to
buy back up to SFr1.5bn of
shares annually, subject to
market conditions, but this
week the bank declined to
comment on whether it had
started the process.
4HEûmEXIBILITYûTOûSTART ûPAUSEû
or halt buybacks is seen as part
of the attraction.
Norway’s DNB has spent about
US$350m buying back shares in
each of the past two years and
planned to purchase another
0.5% of its stock this year, with
CEO Kjerstin Braathen saying
BUYBACKSûAREûhAûMOREûmEXIBLEû
tool” that it can evaluate and
use, dependent on growth,
currency moves and other
outside factors.DNB said on Tuesday it would
decide whether to implement
the buyback before March 23, a
deadline set by Norway’s
lNANCIALûREGULATORûTOûMAKEû
decisions on distributions amid
the coronavirus outbreak.RELIEF, BUT ONLY FOR
LENDING...
The European Banking
Authority this month told banks
to “follow prudent dividend and
other distribution policies”.
The Bank of England backed
that up, and warned banks not to
misuse relief it had given them
from the removal last week of a
counter-cyclical capital buffer.
“It’s not going to be taken away
by banks dividending out that
additional capital or by them
raising bonuses for employees,”
said Mark Carney on March 11, a
few days before he stepped down
as BoE governor.
BARCLAYS has wanted to restart
BUYBACKSûASûITSûPROlTSûWEREûONû
THEûRISE ûBUTûlNANCEûCHIEFû
Tushar Morzaria said last week
the bank “would look to behave
responsibly and utilise those
[capital] buffers accordingly, in
the right way”.
HSBC, which has bought back
US$6bn of shares over the past
three years, last month
suspended its share buyback
programme for 2020 and 2021
due to its costly restructuring
plan.
LLOYDS BANKING GROUP halted its
share buyback plan in
September, and as the UK’s
largest retail bank, it seems
unlikely that it will restart it
soon given the BoE’s scrutiny.
In Italy, UNICREDIT outlined
plans in December to return
€8bn to shareholders via
dividends and share buybacks
and MEDIOBANCA launched a
€600m buyback programme in
November. Neither bank
responded to a request for
comment on their plans. “Supervisory approvals
for buybacks may
prove more difficult to
obtain in the changed
scenario”4 IFR Top news 2325 .p 2 - 12 .indd 12 20 / 03 / 2020 19 : 08 : 59