U.S. banks accelerated common share buybacks in 2021 after holding back from repurchase activity the prior year amid the COVID-19 pandemic and related restrictions.
Banks repurchased $75.02 billion of common shares throughout the year, up from $31.99 billion in 2020, according to S&P Global Market Intelligence data. In the fourth quarter of 2021, they bought back $14.10 billion of shares, compared to $1.83 billion in the fourth quarter of 2020.
Still below pre-COVID levels
Banks' buyback activities in 2021 showed a significant improvement from the previous year but still lagged pre-pandemic levels. Buybacks totaled $121.37 billion in 2019, but many banks suspended repurchase plans in 2020 as a result of the pandemic, and the Federal Reserve restricted capital distributions by big banks. Repurchases amounted to only $3.21 billion from the second quarter through the fourth quarter of 2020.
The Fed relaxed the special, pandemic-era restrictions in December 2020 after having prohibited buybacks altogether in the second half of 2020. The restrictions ended after the results of the 2021 stress tests were published in late June 2021, which meant the banks put to the test were cleared to resume dividends and stock repurchases.
Freed from restrictions
Big banks topped the list of banks with the most common share repurchases in 2021. Top repurchasers included Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc., each which were among the eight U.S.-based global systemically important banks that temporarily paused share repurchases in mid-March 2020.
Bank of America repurchased a total of $25.13 billion of shares in 2021, down 10.7% from 2019. Due to its buybacks, the company's EPS of 82 cents in the fourth quarter of 2021 improved 39% on a year-over-year basis, CFO Alastair Borthwick said on the company's most recent earnings earnings call.
JPMorgan bought back $18.41 billion of shares, a decrease of 23.3% from 2019. JPMorgan had the second-most aggregate repurchases among U.S. banks, but buybacks are a relatively low priority, behind loan growth, other opportunities to invest in the business and potential M&A, CFO Jeremy Barnum said in a fourth-quarter 2021 earnings call.
First Horizon Corp., which is in a pending deal with Toronto-Dominion Bank, hiked repurchases by 208.6% from 2019. Meanwhile, Citizens Financial Group Inc.'s buybacks fell 74.5% from two years ago. In 2021, the company announced the proposed acquisition of Investors Bancorp Inc. and the purchase of 80 East Coast branches and national online deposit business from HSBC Bank USA NA, among other deals.
Eyeing 2022 stress tests
This year's Fed stress tests will expose big banks to only modest changes in capital requirements, analysts predicted. Jefferies analysts said they expect share repurchases to slow in 2022 with banks nearing internal targets, loan growth picking up and some banks heading toward higher buffer requirements.