Raymond James’ Saut Looks at Banks on Buybacks After 10 Years

Financial companies may be worth buying again after they increased share repurchases and boosted payouts to owners, according to Jeff Saut, chief investment strategist at Raymond James & Associates.

“I’m looking at banks for the first time in 10 years because they’re starting to buy back stock, increase dividends, which suggests to me they’re pretty comfortable with their capital ratios,” Saut, who helps manage $240 billion in St. Petersburg, Florida, said in an interview at Bloomberg’s New York headquarters yesterday. “If that’s the case, they’re cheap.”

Saut avoided losses during the 2008 financial crisis when write-downs in the subprime mortgage market pushed the S&P 500 Banks Index down 88 percent between February 2007 and March 2009. The index has since rallied 177 percent, while the Standard & Poor’s 500 Index has gained 79 percent.

The Federal Reserve issued guidelines last month for supervisors to use in assessing whether banks are strong enough to boost dividends and buy back shares. Comerica Inc., the Dallas-based bank that posted annual profits throughout the financial crisis, increased its quarterly payout to 10 cents a share on Nov. 16. Comerica also authorized the repurchase of as much as 7 percent of stock outstanding.

Wells Fargo & Co. Chief Financial Officer Howard Atkins said in October that a dividend increase is a “top priority” for the bank. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he was “reasonably hopeful” the firm will be able to raise its payment in 2011’s first quarter and that regulators were open to the idea.

U.S. rules limiting Wall Street firms’ proprietary trading may mean banks have fewer tools to boost profits, according to Saut. He also said he is considering buying smaller, regional lenders such as Iberiabank Corp., a Lafayette, Louisiana-based lender.

Economists at Goldman Sachs Group Inc., the most profitable Wall Street firm, recommended investors buy bank stocks yesterday. Bets on the KBW Bank Index will return 25 percent, economists led by Jan Hatzius in New York predicted.

To contact the reporter on this story: Inyoung Hwang in New York at Ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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