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Some Banks Dilute Shareholders, Despite Buybacks

Stocks in this article: JPM BAC C WFC DFS STT PNC

Along with JPMorgan and Bank of America, KBW in a note to clients Sunday lumped Wells Fargo (WFC) and Goldman Sachs (GS) into the group of stress-tested banks with "least effective" share buyback programs last year. Wells Fargo's gross share repurchases totaled $6.682 billion from the second quarter of 2013 through the first quarter of 2014, according to KBW's estimate, but its net repurchases only came to $1.379 billion. Goldman's gross repurchases totaled an estimated $5.858 billion over the same period, with net repurchases of $2.896 billion. Wells Fargo's period-end share count was flat last year, while Goldman's period-end common-share count by 2.7% to 467.4 million shares as of Dec. 31.

Citigroup's C period-end share count was flat in 2013, at 3.029 billion as of Dec 31, but the company's share count rose 3.6% during 2012. The company was approved for $1.2 billion in buybacks following the March 2013 stress tests. On Wednesday, KBW analyst Fred Cannon estimates Citi will receive Federal Reserve approval for $7.619 billion from the second quarter of 2014 through the first quarter of 2015, with net repurchases for the same amount.

The stress-tested bank showing the most common-share dilution during 2013 was M&T Bank (MTB) of Birmingham, Ala., with period-end shares rising 1.8% year-over-year to 130.6 million as of Dec. 31. The company is not expected to request approval for any buybacks from the second quarter of 2014 through the first quarter of 2015, because it is working to improve its Bank Secrecy Act and anti-money laundering compliance, in preparation for its long-delayed acquisition of Hudson City Bancorp (HCBK) of Paramus, N.J.

A larger regional bank showing some dilution last year was PNC Financial Services Group (PNC) of Pittsburgh, with period-end common shares outstanding rising by 1% to 533 million as of Dec. 31. Mutascio estimates PNC will receive approval on Wednesday for $972 million in buybacks from the second quarter of 2014 through the first quarter of 2015, with net buybacks of $729 million.

Largest Share-count Reductions

Among the big U.S. banks subject to the stress tests and CCAR, the two seeing the largest share-count reductions during 2013 were State Street (STT) of Boston and Discover Financial Services (DFS). Both companies made sufficient net share repurchases to reduce their share counts by more than 5% during 2013, after doing the same during 2012.

KBW analyst Robert Lee estimates State Street on Wednesday will receive regulatory approval for $2.026 billion in common-share buybacks from the second quarter of 2014 through the first quarter of 2015, with estimated net buybacks of $1.620 billion, down slightly from estimated net buybacks of $1.676 billion from the second quarter of 2013 through the first quarter of 2014.

KBW analyst Sanjay Sakhrani estimates Discover will be approved for $1.6 billion in buybacks from the second quarter of 2014 through the first quarter of 2015, with estimated net buybacks of $1.365 billion, increasing from estimated net buybacks of $1.256 billion for the prior-year period.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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