October 29, 2009 / 8:00 PM / 9 years ago

UPDATE 1-RBC renews share repurchase plan

* Renews ability to repurchase up to 20 mln shares

* Bid to balance strong capital with shareholder value

* Still too early to expect buyback - analyst

TORONTO, Oct 29 (Reuters) - Royal Bank of Canada (RY.TO) said on Thursday it renewed its ability to repurchase up to 20 million common shares, but analysts said it is too early to expect Canadian banks to start deploying capital yet.

The approval of the normal course issuer bid by Canada’s largest lender is a routine move to ensure the bank can repurchase its own shares, for cancellation, in the next 12 months. It did not buy back any in the last 12 months.

But investors are watching Canada’s highly capitalized banks for signs they are ready to start spending the money that buffered them through the financial crisis, whether through share buybacks, dividend increases or acquisition.

That would signal the banks are going to relax vigilance over capital levels in a bid to boost earnings — by removing shares from circulation, in the case of a share buyback.

RBC simply said it wanted to guard the balance between strong capital levels and earnings.

“The purchase of common shares under the normal course issuer bid forms part of RBC’s capital management program and will enable the bank to balance the imperatives of maintaining strong capital ratios with the ongoing need to generate shareholder value,” RBC said in a statement.

Analysts said it was still a bit early to expect the banks to buy back shares. Canada’s big lenders all issued shares during the financial crisis to raise capital and bolster balance sheets. The move diluted earnings per share.

The country’s banks are expected to repurchase some of those shares or boost dividends — perhaps simultaneously — as confidence in global markets and the economic rebound gains strength. But analysts said they were not there yet.

“We’re still in an environment where capital is going to be a top priority,” said Edward Jones analyst Craig Fehr. “I don’t think they’re going to be pushing capital out the door just yet.”

RBC shares are also expensive compared to earlier in the year when the bank was issuing stock. Companies sometimes buy back shares when they feel their stock is undervalued.

RBC shares were C$1.65 higher at $54.99 on Thursday, close to September’s 52-week high of C$58.50 and more than double the year-low of $25.52 hit in February.

The run-up in bank share prices means the dividend yield has declined from the 8.05 percent peak in late February, to about 4.14 percent, according to a research report by Macquarie banking analyst Sumit Malhotra. The decade average is 3.38 percent. (Reporting by Andrea Hopkins; editing by Janet Guttsman)

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