NEW YORK (
) -- Banks might think twice about making large buybacks to shore up stock prices given the greater macro-economic uncertainty, according to Deutsche Bank analysts.
Investors have been hoping that banks will begin returning excess capital in 2012 as they struggle to improve profitability in a flailing recovery. It has been among the few silver lining arguments analysts have made for bank stocks in recent months.
Capital levels will likely remain robust even in a downside scenario by Deutsche Bank's estimates. In a zero to 1% growth scenario, Tier 1 Capital for the larger banks under Basel 1 and Basel 3 is likely to be at 10.3% and 9.7% respectively by the end of next year.
"The key question is whether banks will be allowed (and will want to) repurchase stock in such an uncertain macro environment," a team of analysts led by Matt O'Connor wrote in a note. "If they can (buyback stock), and GDP growth is still positive (even if barely so), bank stock performance may be better than expected. However, our gut is that banks/regulators won't be so eager for large buybacks when it's unclear how bad macro conditions will get."
Only 5 of the 18 banks that Deutsche covers currently have authorizations and regulatory approval to repurchase stocks-
PNC Financial Services
The analysts believe PNC Financial might choose not to make repurchases in light of its acquisition of RBC's retail banking operations in the U.S.
Six other banks are well positioned to make buybacks from a capital and profitability perspective, in the analysts' view, but need regulatory approval. They are
Fifth Third Bancorp
Bank of America
are still building capital, but Citi could be in a position to buy back shares in the second half of 2012, according to the report.
--Written by Shanthi Bharatwaj in New York
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