The three big banks spend 7,000 million to buy back shares from their investors

The banks had, not without protest, to limit the remuneration they gave to their shareholders during the pandemic on the recommendation of the European Central Bank. After a partial lifting at the beginning of 2021, in the autumn the starting signal was fired for a return to normality. The bank trusts a good part of its evolution in the Stock Market to the profitability that it gives to its investors and, since the limitations were lifted, they have been announcing successive dividend plans that accumulate up to half of the benefit. To this have been added the important bets made by the three main Spanish groups, Santander, BBVA and CaixaBank, for the repurchases of shares. Since last fall, this shortlist will have spent 7,000 million euros on this policy.

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Share buybacks are a method of increasing shareholder payouts that, while not new, have gained prominence in recent months. Through this system, companies, in this case banks, buy their own shares from their investors. After that, there is a reduction in the number of shares by the company, withdrawing those that have been acquired. In this way, as the global value of the company is maintained in the market, the nominal value of each title increases. In addition, when it comes to distributing the dividend, it is made between fewer shares, so the return that each title has is greater. This is the theory of this operation.

Thus, the three large Spanish banks have chosen to combine a cash payment for each share listed on the Stock Exchange with the buyback program, with the aim of trying to be more attractive to shareholders. During the pandemic, banks were especially punished in their market value and blamed it on the fact that they could not pay shareholders while in other sectors there were no limitations. That is why since the veto was lifted, banks have been updating their remuneration strategies for their investments.

To do this, they will use the excess capital they have on their balance sheets after having frozen payments for a year and a half and the profits reaped in 2021. The six big banks they earned 21,000 million last year —marked by the torrent of staff cuts—, of which 17,000 million corresponded precisely to these three largest entities in the country.

These programs are usually done in several steps. For example, Banco Santander has allocated some 1,700 million euros to the repurchase of shares since the autumn and did so in two phases. Between October and November of last year, it dedicated 841 million euros to these operations. In May, the second part of this process was completed, by investing more than 860 million euros to repurchase just over 286 million titles owned by its investors. In total, between the two operations, 545 million shares have been repurchased by Santander, just over 3% of the shares that were in circulation.

"Beyond 2022, we aspire to increase shareholder remuneration above 40% of our ordinary profit," said Ana Botín, president of the entity, at the bank's shareholders' meeting this spring, opening the door to carry out new operations of this type in the coming years. In her speech, she defended that the objective was to amortize the shares after the repurchase. "We are convinced that investing in Santander shares at current prices is one of the best investment opportunities we have," she defended. Thus, it hopes that half of the payment to shareholders will be made through repurchases.

BBVA is also doing it in two phases. The group had announced at the end of October its intention to carry out a repurchase of shares valued at 3,500 million euros, valued in the market as one of the most important that has recently taken place in Europe. The first phase was announced in October and ended last March. They were 1,500 million dedicated to buying more than 218 million shares. After that, a second tranche of 1,000 million euros was opened, which will be followed by a third program of 1,000 million euros. With this, it is expected that the year will end with an investment of 3,500 million. The president of the bank, Carlos Torres, assured that the objective was to redeem 10% of the bank's titles.

The last entity to sign up to this policy is CaixaBank, a group owned 30% by the La Caixa Foundation and 16% by the State. This bank announced its dividend policy when it presented its 2021 results, which this time included a share buyback program, which it later detailed would be equivalent to an investment of 1,800 million euros. The entity with public participation began this process at the end of last month. This week it informed the CNMV that it had already allocated more than 240 million to buy 73 million shares of the bank in the market. The entity set a limit that this operation does not reach 10% of the shares that are in circulation and that it be carried out within a maximum period of 12 months.

More buybacks in the future

The bank led by Gonzalo Gortázar included these 1,800 million euros in repurchases in the strategic plan for this year and the next two presented last month. This line of action contemplated 9,000 million euros of shareholder remuneration, between purchases of shares and dividends, during the three years of the plan. The CEO of the entity himself left the door open during the presentation of said strategy to carry out new repurchases of shares in the future.

Bankers have defended in recent years that their companies are undervalued on the stock market and these types of operations are usually aimed at improving the value and demand for securities that are at low prices in the market. Analysts often point out that the message that these types of decisions can send can have a mixed result. On the one hand, it can give the positive idea that the company in question has enough capital to continue paying its shareholders. However, it can also give the impression that the entity is not confident in strong growth potential.

The evolution of these three banks on the stock market so far this year has been somewhat uneven. Though the entire sector started the year the year with strong increases Given the expected news about rate hikes, the evolution of each entity has been separated in recent months. CaixaBank is the best positioned this year as it is the second value of the Ibex 35 that grows the most in 2022, only behind Repsol, rising more than 51%. The revaluation in Santander is more modest in this same period, since it barely rose 3.8% in almost six months. BBVA, however, trades in negative compared to the start of the course and has left 0.22%, almost equaling the value it had on January 1.

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