"Confidence in Rebound?" US Banks Follow Up with Share Buybacks After Turmoil

by Cho Seulkina

Published 25 Apr.2023 03:50(KST)

Following the turmoil in the banking sector triggered by the collapse of Silicon Valley Bank (SVB) in the United States, corporate insiders such as executives have been actively purchasing their own company shares. This is seen as a sign of confidence in the market rebound this year.

The Wall Street Journal (WSJ) reported on the 24th (local time) that during March, when the fallout from SVB's bankruptcy was spreading, more than 1,000 executives and board members from over 600 companies bought shares of their own companies. According to Washington Service, a provider of insider trading data analysis, this is the highest level for both individuals and companies since May of last year. The ratio of insider buying compared to selling also surged to its highest level since September last year.

In the case of Charles Schwab, which was engulfed in crisis rumors immediately after the SVB incident, CEO Walt Bettinger disclosed in mid-last month that he personally purchased $3 million worth of company shares, directly stating that the company is building a solid foundation. More than half of the corporate insiders who bought shares in March were executives and board members of financial companies. Amid the banking sector turmoil, they emphasized their companies' soundness while seizing the sharp stock price drop as a buying opportunity.

WSJ conveyed the atmosphere, saying, "Financial companies accounted for a significant portion of the buying activity," and "executives bet on a stock market recovery immediately after the rapid collapse of U.S. banks intensified the global banking crisis."

Investors are also paying close attention to the share purchases by corporate insiders who have deep knowledge of company information. This sentiment is also seen as connected to the stock market rebound from last month's low. The S&P 500 index has risen 7.7% this year, demonstrating resilience even after the banking turmoil triggered by SVB in March, WSJ analyzed. Stephanie Lang, Chief Investment Officer at asset management firm Homrich Berg, said, "There was a lot of fear that was dragging down the value of quality companies in the market. It was like throwing the baby out with the bathwater," adding, "Insiders investing alongside shareholders (through share purchases) is a good endorsement of the stock."

According to investment research firm VerityData, insider share purchases in March were concentrated in regional banks. Representative examples include Cullen/Frost Bankers headquartered in Texas, PacWest Bancorp based in California, and Fifth Third Bancorp centered in Ohio.

Ben Silverman, Research Director at VerityData, said, "It is a sign of confidence that they have the ability to weather the storm caused by the SVB banking crisis," adding, "Such signals are definitely positive for investors." Eric Deaton, President of investment advisory firm WellsAlliance, also said, "I like to watch the movements of corporate insiders. This is not 2008 (the global financial crisis)," expressing confidence that the banking crisis has been resolved due to the rush of insider share purchases in the banking sector.

However, there are also cautions that investors should watch this trend more carefully. Victoria Fernandez, Senior Market Strategist at Crossmark Global Investments, said, "The increase in insider buying is a positive signal," but pointed out, "It is not the only factor to consider when making investment forecasts." She added that stock prices could fall if corporate earnings disappoint expectations and if the central bank, the Federal Reserve (Fed), continues raising interest rates for a longer period.

Last month, insider share purchases were also confirmed in consumer-focused companies outside the financial sector. Domino's Pizza CEO Russell Weiner purchased $1 million worth of company shares in early March. This is Weiner's first insider purchase. VerityData reported that this is the first time since 2015 that an insider has bought shares at Domino's Pizza.