uploads///BAC Compensation

How Will Bank of America’s Buyback Plan Impact Shareholders?

By

Mar. 22 2016, Published 12:09 p.m. ET

Bank of America announces share buybacks

On March 18, 2016, Bank of America (BAC) reported that its board of directors has authorized the repurchase of shares worth $800 million. This is in addition to the existing $4 billion share repurchase plan announced in March of last year. Furthermore, it is likely to be topped with additional buybacks in June after the CCAR (comprehensive capital analysis and review) results for 2016 are published. Shares of the company gained 3% following the announcement.

Article continues below advertisement

What it means to Bank of America’s shareholders

Existing shareholders might consider this great news, but the catch is that this move might not be just to return value to shareholders. The real motive behind the buyback is to offset the effect of dilution resulting from the equity-based compensation recently awarded to bank employees. The bank announced last month that its CEO Brian Moynihan would receive $2.9 million worth of the company’s shares as part of his compensation for 2015. Although this share buyback plan will not affect the value of shares for current investors, it could signal that Bank of America has sufficient cash to raise dividends or expand it share repurchase program once the CCAR process is complete.

Meanwhile, rival bank JPMorgan Chase (JPM) also announced plans to buy back $1.9 billion of shares on Friday. Peers (KBE) that have expanded their share buyback programs in the last few months are:

  • Capital One (COF) – Added $300 million to its existing share repurchase plan in February
  • Wells Fargo (WFC) – Expanded its buyback plan by $17 billion in January

Wall Street (SPY) analysts consider BAC to be a “compelling buy” at current valuations. Read on to know more about its current valuations and analysts’ ratings.

Advertisement

More From Market Realist