Behind the bank buyback bonanzaMarch 15, 2012: 1:00 PM ET
What a difference a stress test makes. Feeling flush, banks announced a record number of buybacks on Tuesday. Will it pay off?
FORTUNE -- It's the dawn of a new day -- or is it? Banks blessed by the Federal Reserve's "stress tests" this week announced record stock buyback plans on Tuesday. Financial companies like American Express (AXP), Bank of New York Mellon (BK), and JP Morgan Chase (JPM) authorized $26.9 billion in buybacks -- making it the 7th-biggest day for buybacks in history, according to Birinyi Associates.
The buybacks were a long time coming. Many banks have been anxious to return capital to shareholders after slashing dividends and buybacks during the financial crisis. "Financials have been champing at the bit to do this," says Birinyi analyst Rob Leiphart. Buybacks remain a distant hope for some. Citigroup (C) said the Fed had objected to its plans to return capital, forcing the bank to submit a revised plan later this year. But overall, banks are celebrating their Fed-granted freedom.
What record buyback announcements portend for the stock market isn't easy to calculate. Even the numbers crunchers at Birinyi can't say. "It's really gray," Leiphart says. It's been true this decade that companies usually announce buybacks when they are feeling flush. Unfortunately for investors, that's usually at the top of the business cycle when stock prices are near their peak. (See Stock buybacks: Buy high and sell low)
Birinyi's historical data seems to support the idea that companies poorly time buybacks. The largest single-day of buyback announcements, when 15 companies authorized repurchases worth $56 billion, occurred on July 20, 2006. The second largest day for repurchase announcements? September 22, 2008.
The buyback news must be welcome for bank investors. For everyone else, it's less clear.
Birinyi provided a list of those companies authorizing buybacks: