Corporate buybacks gain steam with banks poised to boost buying

San Francisco

HIGH stock price valuations may be giving some investors pause, but it hasn't stopped US corporations from ploughing even more cash into their shares.

Morgan Stanley and Wells Fargo are among the country's biggest lenders that signalled last week that they're stepping up repurchases and raising dividends after passing Federal Reserve stress tests with flying colours.

Banks are joining the party after buybacks rose sharply in the first three months of the year. The moves bode well for stocks since buybacks are a direct way to boost share prices and companies are flush with cash as the US economy rebounds from a year of lockdowns.

"We think that buybacks will exceed all-time highs," said Scott Ladner, chief investment officer at Horizon Investments.

In the first three months of 2021, companies in the S&P 500 spent US$171.5 billion on stock repurchases, according to data compiled by Bloomberg Intelligence. While still below pre-pandemic levels, the buying was a big jump from the last three months of 2020, when companies spent more than US$120 billion on their own stocks.

So far, tech companies have been the biggest buyers. In the first three months of the year, the information technology sector accounted for nearly a third of buybacks, led by Apple. But now banks - more than a decade on from the financial crisis and poised to benefit if interest rates rise - are stepping up their repurchases.

Morgan Stanley's plan to increase its dividend and shell out as much as US$12 billion on buybacks over the next 12 months was among the most celebrated. The New York-based bank's shares advanced 4.1 per cent on the week. BLOOMBERG