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Big US Banks Suspend Stock Buybacks Amid Coronavirus Pandemic

Published 03/15/2020, 09:29 PM
Updated 07/09/2023, 06:31 AM

Coronavirus pandemic has become a serious threat to the global economy. In fact, the Federal Reserve has announced a slew measures including lowering the interest rate by 125 basis points to a target range of 0% to 0.25% and deployment of $700 billion to buy Treasury securities and agency mortgage-backed securities to aid the "flow of credit to households and businesses" to combat the impact of the pandemic and boost the economy and banks’ liquidity.

Taking into account the gravity of the current scenario, multibillion-dollar share buyback programs have been suspended by eight Wall Street biggies till July following the “unprecedented challenge” from the coronavirus pandemic.

The Financial Services Forum (FSF) which represents Bank of America (NYSE:BAC) , Bank of New York Mellon (NYSE:BK), Citigroup (NYSE:C) , Goldman Sachs (NYSE:GS) , JPMorgan (NYSE:JPM) , Morgan Stanley (NYSE:MS) , State Street (NYSE:STT) and Wells Fargo (NYSE:C) announced the same on Sunday evening. Notably, these eight big banks are considered to be “globally systemically important” by the Basel Committee on Banking Supervision.

With their latest move, these banks aim to keep scope of sufficient capital and liquidity for the severe economic uncertainty. Notably, curtailing of businesses and consumer activities in an effort to check the spread of COVID-19 has sparked fears of recession in the United States and global economies.

“The Covid-19 pandemic is an unprecedented challenge for the world and the global economy,” the statement said. “The decision on buybacks is consistent with our collective objective to use our significant capital and liquidity to provide maximum support to individuals, small businesses, and the broader economy through lending and other important services.”

“Even if circumstances get dramatically worse, we have the capabilities and balance sheet to support the financial system and all of our constituencies,” JPMorgan Chase, America’s biggest bank by assets, said in a statement. However, the bank has kept its dividend policy unchanged.

Notably, in 2019, a total of shares worth $108 billion were repurchased by these eight banks, including BofA’s $28 billion in buybacks. “Each member institution retains the ability to reinstate its buyback program as soon as circumstances warrant,” the FSF said. Per the forum, banks’ capital had been increased by more than 40% in total in the past 10 years to $914 billion.

In a separate note, U.S. Bancorp (NYSE:USB) , a U.S. mega bank also suspended its stock repurchase program for the moment till the second quarter on account of the COVID-19 pandemic. As of Dec 31, stock worth $2.41 billion remains in the stock repurchase program through Jun 30, 2020. "This action is being taken to support the efforts that the Federal Reserve is taking to moderate the impact of COVID-19 on the economy and global markets by maintaining strong capital levels and liquidity to support customers, employees and shareholders," U.S. Bancorp said in a statement.

With the economy being adversely impacted due to the coronavirus crisis, the banks’ move following Fed’s interest rates cut to zero might turn out to be a favorable measure in combating the severe impact.

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