NEW YORK ( TheStreet) -- Banks eager to please shareholders have been aggressive on the buyback front but such moves are absolutely wrong, according to Rochdale Securities analyst Dick Bove. In a note on Monday, the analyst says that banks have historically made ill-timed investments in buybacks, repurchasing shares when the stock is at relatively high prices, only to end up raising capital when shares are at very low prices. "The industry is a cyclical industry; not a growth industry. It needs capital at the bottom of cycles and does not need capital at the top. Thus, it buys in at the top and sells out at the bottom," Bove explains, a strategy that pays off for shareholders who sell out but is a bad idea for the companies themselves. Bove argues that banks are essentially swapping their raw material (money for stock) which would be unheard of in any other industry. Moreover, there is a tussle between what shareholders want and what regulators envision for the industry. "Investors seeking stock buy backs are asking the banks to "run close to the wind" - i.e., drop their leverage ratios to points where an economic set back will require the sale of more stock," says Bove. "They are asking banks to do exactly what their regulators do not want them to do. To the degree that regulators understand this, the regulators are likely to keep hiking the demand for more capital to defeat investor demands for less capital." JPMorgan Chase ( JPM) bought back shares worth $4.4 billion in the third quarter, fully exhausting the $8 billion in capital authorized for buybacks in 2011. But with shares trading much lower towards the quarter-end, CEO Jamie Dimon said it would have been "wiser to wait" and apologized during the conference call. Goldman Sachs ( GS) spent $2.2 billion in buybacks in the third quarter after spending $1.5 billion each in the prior quarters. The management remained open to the idea of further repurchases though there was no express announcement of further buybacks.
"We sit here today it's a very stressed environment which causes us to want to conserve capital but we look at our stock price and we're pretty convinced that looking back we're going to wish we bought back a whole lot of shares at this price," CFO David Viniar said in the analyst call. --Written by Shanthi Bharatwaj in New York >To contact the writer of this article, click here: Shanthi Bharatwaj. >To follow the writer on Twitter, go to http://twitter.com/shavenk. >To submit a news tip, send an email to: firstname.lastname@example.org.