The CNMV criticizes banks’ share buybacks: "no excess capital" and do not generate shareholder value

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The president of the National Securities Market Commission (CNMV), Rodrigo Buenaventura, has been critical of a practice that is becoming increasingly common in the national stock market such as share buyback programs as a complement to the dividend. cash. During his speech at the XIV Expansion Financial Meeting – KMPG held this Tuesday in Madrid, Buenaventura wanted to clarify that, although these are “legal operations, supported by the shareholders’ meetings” of the listed companies, the acquisition and subsequent amortization of own securities It is hardly justifiable from the point of view of creating value for the shareholder.

The head of the Spanish regulator considers that the “intervention” of the companies in setting prices in the market “has gone growing up” in recent years. “Share buybacks are a growing phenomenon throughout the world” by which “a listed company uses the liquidity it has available, instead of distributing dividends, accumulating reserves or investing in new projects, to buy back capital in the market and amortize it, reducing the amount of equity. These operations have been especially profuse among listed banks, not only in Spain but throughout the world,” said Buenaventura. In fact, he understands that defining these buybacks (according to the Anglo-Saxon term) as “shareholder remuneration” is the result of “a poor translation from English, on the term payout“, since it does not end up translating into greater profitability in the long term.

The managers who decide to buy back are not particularly clear-sighted when it comes to detecting episodes of greater undervaluation of the stock. or, at least, the market does not usually recognize it in the medium term. That is to say, an important part of the shares on which buybacks are launched, remain equally well or poorly valued with respect to the market or its sector, months or years after the buyback was made, without apparently being able to observe a creation of value. additional for shareholders,” clarified the president of the CNMV.

The regulator has been skeptical of this practice, adopted mainly by Spanish banks, but also by other companies such as Repsol, taking into account that “there is no excess capital” and therefore “reducing it via share amortization may have strategic implications for some issuers or some sectors and by extension for our economies”. Recently, Banco Santander announced a first buyback program worth 1,310 million euros as a complement to the dividend charged to the results of the first half; BBVA has just started a new program of 1,000 million euros (it has allocated a total of 2,400 million since last year to this concept) and Repsol has acquired almost 20% of its securities since it launched the last strategic plan for the period 2021-2025.

The CNMV believes that it has a pending task and that is to educate Spanish investors so that they diversify their savings and obtain greater profitability. According to data from the regulator, the “risk aversion” of savers is “very high.” It is based on data such as the fact that The percentage of deposits over the financial wealth of families is 40%and this is striking taking into account the zero remuneration for savings of the largest entities in the country.

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