because the buyback is fashionable among the big names in Piazza Affari-Corriere.it

There is a new theme of strategy development business of the main Italian credit institutions. This is well understood during this season of the assembly. Four of the top five Italian banks have submitted a more or less substantial plan to buy back treasury shares to the vote of their shareholders. Slang a buy back stock. The first to move in this direction was Unicredit. Already last year the managing director of the group, Andrea Orcel, proposed and obtained from the shareholders the go-ahead to start an important share buyback plan involving the investment of 2.6 billion euros, divided into two tranches. A first of 1.6 billion, the second concluded in November for the residual one thousand million euros. It was an operation that bore the hoped-for results. So much so that, during the shareholders’ meeting of last March 31, Orcel resubmitted the request obtaining a new go-ahead from the shareholders for a total amount of 3.3 billion euros, the first tranche of which – for a total of 2.34 billion – already been started. Important operations, which align Unicredit to big of the Italian list. Both Eni and Enel, in fact, have already launched treasury share buyback operations in the past: Eni last year for a total of 2.4 billion, Enel for a total of 2.7 billion. And in the recent meetings, just as Unicredit did, the mandates were confirmed: 2.2 billion euros available for Eni’s plan, 2 billion for Enel. In the two-year period 2022/2023, the two big names in state energy have allocated 9.3 billion euros to bring home a slice of capital.

The banking world is on the move

Unicredit is not the only bank to buy back its capital. In the last two weeks, both Banco Bpm and Bper have brought treasury share buyback programs to the shareholders’ meeting, obtaining the go-ahead. Different programs from that of Unicredit, because they are aimed at providing incentives for employees. Even the first Italian bank, Intesa Sanpaolo, meeting last Friday, voted for a share buyback plan in favor of the incentive plans for its employees. Intesa, in truth, has also recently concluded a buy back important, valid for 2022, with two tranches of 1.7 billion euro which brought the total disbursement for the purchase of treasury shares to 3.4 billion. Therefore, four of the top five Italian banks are facing share buyback paths. The only one excluded, for obvious reasons of opportunity, is Monte dei Paschi di Siena which thinks above all of selling its shares rather than repurchasing them, also to comply with the commitments undertaken by the Italian government, its main shareholder, towards the European authorities. But even Monte, in the meeting, introduced the concept on the subject of employee incentives, for now limiting itself to the so-called phantom shares.

The mechanism

Monte dei Paschi aside, the trend is clear. Big companies buy themselves back. The operation deserves to be explained in its effects. The credit institution does not pay a dividend on the repurchased shares that become available to the bank, because the shares are cancelled. In this way two objectives are achieved: on the one hand, with fewer shares outstanding on the stock market, these tend to increase the price. a simple rule of economics that applies in this case: the scarcity of a good, with the same demand, increases its price. On the other hand, by not paying the dividend on treasury shares, the total dividend implicitly increases. The results of this strategy have been seen over the last year and a half, or since Unicredit launched the first of its buyback policies. The share, which had fallen to 7.50 euros, today exceeds 18 euros, has already reached 20 and in one year has achieved an increase of 103.5 percent. In addition, in recent days the shareholders of the bank led by the president Pier Carlo Padoan have collected a coupon of more than 50 cents.

The objections and the solidity of the sector in Italy

All right, then? There is no shortage of objections. On the one hand, there are those who point out that these operations for the return on invested capital and support for the share price on the Stock Exchange have little to do with the development of the business and the growth of activities, which some would also like to achieve through acquisitions. On the other hand, there are those who emphasize the fact that the purchase of treasury shares involves a significant outlay of capital. In a particularly supervised system such as the one submitted to the attention of the Bank of Italy and the European Central Bank, which must authorize the operations of buy-back, the capital solidity requirements of the banks in question are never affected. However, there is no doubt that, albeit on a small scale, this type of operation makes banks more exposed to possible difficult situations in the future. Let me be clear: Italian banks are much more solid today than in the past. The capital ratios are largely exceeded by the Italian institutes and operations of this kind lead to the only fractional reduction of, with filings to the tangible equity. But formulating these objections, in a market that has already consolidated and despite the rivers of words that see Unicredit now on Monte dei Paschi now on Banco Bpm, this seems to be the only strategy to support the shares and remuneration of the shareholders that has been found.