The arrival of the coronavirus pandemic placed banking sector dividends under the regulator’s focus. The European Central Bank (ECB) imposed a ban on distribution among shareholders with the objective that banks would allocate their resources to boost the economy. Although in the summer of 2021 the body chaired by Christine Lagarde completely lifted that veto, the European supervisor has asked entities to be prudent in their distributions in the face of economic uncertainty. However, with the replacement of Andrea Enria as head of the Banking Supervision Council, the situation may change.
Her successor, Claudia Buch, has a reputation for being tough, but in a speech in front of the German Parliament she explained that the distribution to shareholders is not an issue where she has to set the bar and she left the door open to not always setting limits in the banks. . and when European financial institutions meet their required capital targets. Financial sources do not rule out that, a month after the replacement, there is pressure from the banks to adopt a more lax stance, something that in the opinion of these same sources would benefit the sector. The change would involve reducing the capital limits required to carry out shareholder remuneration, according to ‘Bloomberg’.
We must not forget that after the outbreak of the financial crisis in 2008, which revealed that banks were highly indebted and had little capital, there was a paradigm shift by supervisors so that they increased their capital reserves and faced possible crisis. Precisely, the president of the ECB, Christine Lagarde, recalled during her speech at the V Banking Supervision Forum that “the aggregated ordinary capital of tier 1 (CET1) of the supervised banks stood at 15.7% in the second This year’s quarter, an increase of 440 basis points since the start of European supervision.”
Would boost stocks
If a more lax position is adopted, the sources consulted in the sector in Spain consider that it would benefit its current situation. In that sense, remember that bank prices are below their book value, despite the latest increases recorded on the stock market. In fact, they highlight that the rise in interest rates naturally boosts profits, but is insufficient to attract investors. In fact, they explain that this could provide a boost to the shares.
These same sources recall that the banking sector continues to be heavily penalized due to new taxes, applied in Italy and Spain, as well as changing regulations that generate legal uncertainty. A relaxation of these requirements would make it possible to reduce the cost of capital, which remains uncovered despite the fact that the profitability of European banks in general, and not just that of Spanish banks, has risen due to the effect of the increase in interest rates.
In addition to dividends, the repurchase of shares would also be discussed, the approval process of which involves numerous steps. Precisely these ‘buybucks’ programs have also been used by banks to attract shareholders, since it allows value to be created through the amortization of the securities, which implies that when distributing dividends it is done in a smaller number of shares. , so the value received increases.
Spanish banks are committed to rewarding shareholders
Spanish banks have chosen to follow a strategy that is based on distributing excess capital among their shareholders. Caixabank, for example, announced in its strategic plan that it would distribute up to 9,000 million euros between cash dividends and the acquisition of its own securities. Precisely, in the second quarter results it announced a program for an import of 500 million euros, and the market does not rule out that in the annual results it will announce another of up to 1,000 million euros.
Banco Sabadell has finalized its fund with 204 million euros, waiting to distribute a dividend of 0.03 euros per share at the end of December, which is 50% higher than last year. For its part, the entity chaired by Carlos Torres has excess capital that will continue to be allocated to its shareholders, as confirmed by its CEO, Onur Genç, during the last analyst presentation, especially if inorganic growth opportunities do not arise.
