The concept of yin and yang It has its origins in Taoism and is used to refer to the two fundamental opposing and complementary, interconnected forces found in all things in the universe. It yin represents the feminine, earth, darkness and passivity while the Yang It refers to the masculine, the sky, light and activity, among many other antagonistic but related concepts, which form a dynamic balance that, when one increases, the other decreases in a circumstantial manner.
Although this traditional Chinese philosophy surely did not have shareholder remuneration in the banking sector in mind when it established this principle, yin and yang is ideally suited to explaining the evolution and implications of The Relationship Between Dividends and Share Buybacks of a sector which, in recent years, has seen its profits multiply.
Stock buybacks in the sector have historically been at their best when stocks were most undervalued in the stock market, at favorable points in the cycle when capital reserves were large and interest rates were high, which improved margins and contracted demand for credit. This scenario is clearly what has played out over the past two years.
During the year 2023, the amount dedicated to share buybacks by the six listed Spanish entities amounts to 5.735 million euroswhich undoubtedly supported the 27% stock market rally that the Spanish sector accumulated last year, which was its best year since the birth of the Ibex Banks index in 2015.
This stock market rally, as well as this year’s, will have consequences for the shareholder remuneration policy of these companies since when the shares are more in line with their valuations, as is the case now, it makes less sense to buy and repurchase them. In addition, the context of falling rates which begins now also favors this return to the classic dividend as the predominant means of returning capital to the shareholder since credit should recover, valuations adjust and capital reserves deflate.
In this sense, if we look at the consensus estimates of analysts collected by FactSet regarding share buybacks, we see how This year, they will be reduced to 4.6 billion.approximately. However, it must be taken into account that the public takeover bid launched by BBVA for Sabadell has led the latter to reduce its purchases pending the outcome of the agreement. For next year, the calculations indicate an additional compensation, greater than 8 billion, which will remain below 6,000 in 2026. This figure will be less than half of what the banks will allocate to dividends. in cash, if these forecasts come true.
And these companies will gradually reduce their buybacks, also encouraged by the expected decline in their banking business due to the drop in interest rates. “In times of uncertainty like the one we are currently experiencing, share buybacks do not make sense,” said María Dolores Dancausa, CEO of Bankinter, last year. Bankinter is not planning to carry out buybacks and analysts do not expect them in the coming years either.
At the same time, the dividends distributed by the six entities as a whole will continue to be maintained. above 12 billion euros, thanks above all to the fact that experts expect Santander and BBVA to continue improving them by increasing their profits and maintaining the payment.
The last bank to explain its acquisition project was Santander, this week. The Cantabrian entity announced that it would allocate 1,525 million to its new program, approximately half of the total calculated for the 2024 benefits. The most striking thing about this announcement, in any case, is that Santander assured that. They were only going to buy back shares when they were trading below their tangible book value.which per share is 4.94, a level barely 10% above its current price, proof that the levels on the stock market are close to representing a ceiling and a halt to buybacks.
If we extrapolate this policy to the rest of the banks, Bankinter, BBVA and CaixaBank should no longer continue to carry out buybacks when they exceed the value of their tangible equity per share. On the other hand, Unicaja would have a margin of 100% of its capitalization and Sabadell more than 20%.
For the investor, Santander, BBVA and Unicaja are the stocks with the greatest potentialby more than 20%, even if the last two receive a recommendation to maintain. Analysts recommend buying shares of the Cantabrian bank, as well as those of Caixa and Sabadell.
