Banking & Capital Markets

SEC Prods Buybacks

Eases rules for stock repurchase programs. Also, Fed steps in -- again.
Joseph McCaffertySeptember 17, 2001

The Securities and Exchange Commission announced a series of steps intended to ease today’s reopening of the stock markets. It will allow publicly traded companies to repurchase shares without meeting the usual volume and timing restrictions. The repurchase of shares during the grace period will also not effect a company’s ability to get pooling-of- interest accounting treatment for a merger.

Cisco systems announced plans to buyback as much as $3 billion worth of stock over the next two years even before the SEC granted its reprieve. Other companies soon followed. American International Group approved the purchase of up to 40 million shares. The insurance company expects to lose about $500 million as a result of Tuesday’s attack. First Data Corp. authorized a $700 million buyback plan on top of the $300 million plan already in place. FleetBoston Financial announced one of the largest repurchase plans. The bank intends to buy back as much as $4 billion worth of stock.

Other companies that announced or expanded buybacks include Intel, Pfizer, Starbucks, and Altera Corp., a supplier of programmable logic devices.

Another temporary rule change is that the SEC will let mutual funds borrow money from affiliated banks so that if investors rush to sell shares, fund companies can pay them without having to liquidate stock.

The move by the SEC marks the first time the agency has used its power to alter or suspend requirements, “in the event of certain major market disturbances.”

Fed also Acts to Stabilize Markets

The Federal Reserve Bank also took action to ensure that US and global markets have enough cash to keep them liquid. Friday, the Fed poured a massive $81.25 billion in temporary reserves into the banking system. It was the third straight day the central bank flooded the financial systems with short-term liquidity.

The Fed also signed an agreement with the Bank of England which allows the BEO to draw up to $30 billion in exchange for sterling. Last Thursday, the Fed signed a similar deal with the European Central Bank for a $50 billion swap agreement.

The deals will ensure that cash will continue to flow throughout the world economy as it copes with the economic fallout of the terrorist attack on the US

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