Bank of America Corporation BAC has received the Federal Reserve’s approval for buying back an additional $5 billion worth of common shares by Jun 30, 2018. This is over and above the $12 billion of repurchase authorization that the company had received in June as part of its 2017 capital plan.
The repurchase of extra shares will help the company offset the impact of the additional common stock that was issued when Berkshire Hathaway Inc. BRK.B exercised its outstanding warrants. Berkshire Hathaway converted the warrants that it had acquired after the financial crisis into BofA’s shares in August 2017.
Additionally, this capital distribution will mitigate the increase in regulatory capital that resulted from the sale of BofA’s non-U.S. consumer credit card business.
As part of its efforts toward transforming into “a single-brand business serving core retail customers in the United States”, BofA divested its U.K. consumer credit card operations, MBNA Ltd. to Lloyds Banking Group plc LYG earlier this year, which enhanced its Basel 3 risk-based capital ratios.
BofA’s repurchase program includes both common stock as well as warrants. The company mentioned that the buyback can take place either through open market purchases or privately negotiated transactions.
Given a robust capital position and lower dividend payout ratio compared to its peers, the company is expected to sustain its capital deployment activities, thereby continuing to enhance shareholder value.
Another company from the same space, which has a solid capital and balance sheet position, is Citigroup Inc. C. Its 2017 capital plan includes share repurchase authorization worth $15.6 billion.
BofA’s shares have gained 30.9% so far this year, outperforming the 18.2% rally for the industry it belongs to.
Currently, the stock has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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