Major banks are carrying out the stock buyback
As the economy recovers, activity in the stock markets intensifies. If during the pandemic, IT companies and real estate were mostly showing good growth, now other segments are also gaining momentum. Among the latter is the largest U.S. banks that are planning to start a stock buyback.
During the pandemic, financial institutions lowered interest rates to record levels, so many companies decided to increase the amount of cash. Now the situation is stabilizing and the need for them is decreasing. According to analysts at Citigroup, part of these funds will be used for stock buybacks. There is a probability that such purchases will increase by 30%, and financial institutions are the active participants of this process. The buyback will be observed among representatives of technological and consumer sectors.
Not long ago, the Fed imposed restrictions on the payment of dividends by financial institutions, as well as stock buybacks. At the end of 2020, the organization said that the restrictions will be lifted in June this year, as the next round of stress tests is completed.
According to Citigroup, market giants such as Goldman Sachs and Morgan Stanley plan to buy back a large number of securities in the near future. The situation with Wells Fargo & Company, which was forced to reduce its dividend payments last year, is still unclear. Bank of America said it wants to buy back $3.2 billion worth of stock, while JPMorgan plans to spend $30 billion on the acquisition. Goldman Sachs is also considering a buyback, but has not yet decided how much.The acquisition of banks’ securities was also facilitated by the reports provided by the institutions. It shows that the recovery process is proceeding quite intensively, which is due to a number of factors. Analysts expect that the reserves of funds, which were allocated during the pandemic, will be released again. Experts estimate that this process will withdraw about $5.6 billion, which amounts to about 15% of earnings per share. In addition, interest margins are trending upward, driven by rising yields. In addition, the size of rates continues to increase, and banks are trying to transfer as much cash as possible into high-yielding assets.
Analysts at Citigroup expect the largest U.S. banks will buy back a total of $83 billion worth of stocks by the end of this year. In 2021, this figure could reach 100 billion dollars.
In addition to American financial institutions, Deutsche Bank and other major European banks are also considering investing in stocks.