More than 40 banks announce buybacks in January after Fed frees up big banks

More banks announced share repurchases in January than the previous month, as banks reported fourth-quarter 2020 earnings and the Federal Reserve eased restrictions on larger banks.

In January, 41 banks announced new share repurchase plans, compared with 26 announced in December 2020. During January, Bank of America Corp. was the largest bank by asset size to announce a new program to buy back up to $2.9 billion in common shares through March 31, plus buybacks to offset shares awarded under equity-based compensation plans during the same period, estimated to be approximately $300 million. Chairman, President and CEO Brian Moynihan said on the company's earnings conference call in January that the bank's strong balance sheet capital ratios allow it to resume buybacks.

"With $36 billion in excess capital above our common equity Tier 1 minimum requirements ... we'll once again begin repurchasing shares starting today," he said, according to a transcript. "We're looking to return as much capital to our shareholders as we're allowed and as our board deems prudent."

Keefe Bruyette & Woods expects almost all larger banks to buy back stock during 2021. Meanwhile, small- to mid-cap banks that had suspended share repurchases during the pandemic started to resume their programs during the fourth quarter of 2020 due to strong capital, improving credit visibility and subdued loan growth, according to KBW analyst Christopher McGratty, who expects about half of small- to mid-cap banks to buy back shares during 2021.

Analysts have said the Federal Reserve's stress tests for big U.S. banks could allow for more capital returns to shareholders later this year, with expectations that the Fed will remove all restrictions after stress test results are announced in June.

Other large banks that announced repurchase programs in January included Citizens Financial Group Inc. with a plan to buy back $750 million of common shares, KeyCorp with a $900 million share repurchase program, and M&T Bank Corp. with a program to repurchase $800 million of common shares.

Citizens Financial Chairman and CEO Bruce Van Saun said on his company's earnings conference call in January that the company has not yet decided whether it will opt in to the Fed's stress tests in 2021, but that decision does not affect its repurchase expectations. Smaller regional banks are not required to participate in the stress tests in 2021 but can opt in if they inform the Fed by April 5.

"Regardless of whether we opt in or opt out, we have plenty of flexibility here to buy back our stock, and I think we can be reasonably aggressive. The thing that's more the limiter for us is going to be our capital range, which is our internal targets of 9.75% to 10%," he said, according to a transcript. "So we set the program up with a big enough size that I think we can neutralize the earnings after the [risk-weighted assets] growth."

Van Saun added that the company expects most of the repurchases to be completed in 2021, but could push into 2022, depending on the amounts of loan growth and reserve releases.

Compass Point analyst Laurie Hunsicker said in a Feb. 16 note that she expects the increase in repurchase activity to be a trend that accelerates throughout the year.

"The Fed clearance on buyback resumptions underscores their confidence, a clear positive, and a notable surprise to the Street, with an earlier-than-expected timeline on capital distributions," she wrote. "While there are many obvious benefits to share buyback programs, a lift in stock price = stronger acquisition currency is yet another."

2021 could see a record number of bank deals as impacts and uncertainty related to the COVID-19 pandemic clears. So far, 12 deals were announced in January.