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Is Bank of America's Buyback Real?

By: Justin Kuepper Thursday, July 24, 2008 3:17 PM

Sectors: Finance
Symbols: BAC, KBW

A recent plan by Bank of America (NYSE: BAC) to repurchase shares may have sent the stock higher, but at least one analyst is questioning the validity of the claim. The bank's recent plan to repurchase shares may show strength, but continued weakness means that it may not be completed anytime soon. KBW Analyst Jefferson Harralson noted that "a share repurchase authorization is very different than an actual purchase ... I'd be surprised if they follow through in the near term." This news comes just after the board approved a plan to repurchase up to 75 million shares of common stock for up to $3.75 billion during the next 18 months.

The move by Bank of America comes at a time when nearly all banks have faced mounting losses from rising defaults in their loan portfolios, especially loans tied to real estate. The announcement of a buyback jumped the share price quite substantially, but shares may come crashing back down after this announcement. After all, Bank of America already needs to set aside $5.83 billion in cash to cover current and future loan losses.

Shares of Bank of America dropped over 3 percent on the day.