On Tuesday, McLean-based Capital One Finl Corp (COF) announced a repurchase authorization of up to $1.0 billion shares by its board of directors. This follows the Federal Reserve’s approval of its capital plan in Mar 2013. However, this buyback program – under which shares can be repurchased through Mar 2014 – is subject to certain conditions.
Capital One is allowed to undertake the repurchase program after it successfully completes the sale of Best Buy Co.’s (BBY) credit-card business to Citigroup Inc. (C). Capital One expects this deal to close in the third quarter of 2013.
Capital One is yet to divulge the exact amount and timing of the share repurchase, as it is subject to various factors including the one cited above along with market conditions, the company’s capital position and internal capital generation.
Additionally, consistent with its capital plan, on May 2, 2013, Capital One hiked its quarterly dividend by 500% to $0.30 from $0.05 per share. The new dividend was paid on May 23, 2013 to shareholders of record as on May 13, 2013.
The share repurchase and dividend hike reflect the company’s strong capital position and makes it an attractive choice for yield-seeking investors. Notably, Capital One’s Tier 1 common ratio was 11.8% as on Mar 31, 2013, compared with 11.0% at the end of fourth-quarter 2012.
On the flipside, exposure to commercial real estate, weak demand for loans and the impact of new financial regulations will likely dent the company’s financials.
KeyCorp (KEY) is another bank which received the Fed’s consent for its capital plan. Accordingly, it announced the repurchase of $426.0 million shares on Mar 14, 2013.
Currently, Capital One carries Zacks Rank #3 (Hold).
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