Morgan Stanley, Wells Fargo & Company Unveil Buyback Plan

Morgan Stanley, Wells Fargo & Company Unveil Buyback Plan

Morgan Stanley (NYSE:MS) announced buybacks of up to $1 billion and Wells Fargo & Company (NYSE:WFC)’s board approved plans to buy back an additional 350 million shares.

The Fed has approved capital plans from 25 of the 30 financial institutions participating in the Comprehensive Capital Analysis and Review (CCAR).

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Fed approving CCAR of 25 banks

The Federal Reserve on Wednesday announced it has approved the capital plans of 25 bank holding companies participating in the CCAR. However the Fed objected to the plans of the other five participating firms, including Citigroup Inc. (NYSE:C).

Now in its fourth year, the Fed in CCAR evaluates the capital planning processes and capital adequacy of the largest bank holding companies, including the firms’ proposed capital actions such as dividend payments and share buybacks and issuances.

Wells Fargo’s increased buyback

Wells Fargo & Company (NYSE:WFC) said that is 2014 Capital Plan includes a proposed dividend rate of $0.35 per share for the second quarter of 2014, subject to consideration and approval by its Board of Directors at its regularly scheduled meeting in April. Its plan also includes a proposed increase in common stock repurchase activity for 2014 compared with 2013.

The bank’s Board of Directors has approved an increase of 350 million additional shares in the company’s authority to repurchase its common stock.

In December, RBC Capital Markets analysts pointed out that over the next three years, the banking industry is poised to return nearly all of its excess capital and close to 100% of non-retained earnings annually to shareholders.

The analysts pointed out that Wells Fargo & Company (NYSE:WFC) shows aggregate potential buyback of $41,961 million, translating into buybacks / market cap ratio of a healthy 18.1%.

Interestingly, the 350 million share buyback unveiled by Wells Fargo would retire about 6.6% of the float – a fairly large amount compared to the other repurchase announcements, which is generally less than 3%.

Morgan Stanley’s buyback plan

Yesterday, Morgan Stanley (NYSE:MS) announced that it received no objection from the Fed to its 2014 Capital Plan , which included a share repurchase of up to $1 billion of common stock beginning in the second quarter of 2014 through the end of the first quarter of 2015. It also announced an increase in its quarterly common stock dividend to $0.10 per share from the current $0.05 per share.

The share repurchase will be exercised from time to time at prices Morgan Stanley deems appropriate subject to various factors, including its capital position and market conditions.

Recently, we carried a report from Citi analysts highlighting recent buybacks haven’t led to significant increases in company valuation. It is felt even supposedly shareholder-friendly stock buybacks are not always what they seem.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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