A massive share buyback programme reaching up to a maximum limit of €3.96 billion was announced by BBVA. This is stated to be the largest buyback ever conducted by the group. Furthermore, shareholders received €1.84 Billion in cash on 7th November.
The company has now spent about 10 Billion in buybacks. What does this move imply?
In order to discover the deeper implications, we need to know the effect that the buyback is going to have on the bank’s books.
A buyback of this magnitude would reduce the amount of cash and equity the bank holds. This would directly affect the tier one capital in the company’s balance sheet. Tier 1 capital is the most important source of finance to BBVA, or any bank. This reliable and secure source is called so due to the fact that it is composed of a bank’s equity and reserves.
Thus, Tier One Capital = Reserves + Equity (Mainly)
Due to the nature of these sources, they provide the maximum amount of security against unexpected losses and cushion creditors. Now, when a bank buys back shares, the amount of claim shareholders have over the bank reduces, this, as I’ve mentioned before, reduces the tier one capital it has.
Image Source: American Banker
But why is this not considered a concern in BBVA’s case?
BBVA has stated that despite this massive buyback, the T1C ratio is going to continue to remain well above the minimum legal and regulatory requirements. Adding to this, their internal capital targets are also conveniently met.
What this indicates is surplus capital available in the bank’s books. Thus, investors often consider this to be a good, if not excellent sign of internal confidence and reliability in earnings.
These strategic moves show their effect in numbers too. The 10 Billion Euros allocated have seen a massive growth in earnings per share of up to 27%.
These moves align with their recent, extremely vocal commitments to growth, extraordinary returns for shareholders, and profitability.
Concluding this article, what lessons do we learn from this week’s big news?
1. NEVER paint a black and white picture based on numbers.
2. Any move made by a company always has a broader effect on its books.
3. Analysing changes that happen in financial statements requires a holistic understanding of the company’s business model and internal targets.
Image Source: BBVA
Sources:
- https://mexicobusiness.news/finance/news/bbva-unveils-record-share-buyback-plan-sabadell-takeoverlooms
- https://www.reuters.com/business/finance/spains-bbva-announces-464-billion-share-buyback-2025-12-19/
- https://www.thebanker.com/content/dd1bd63c-7e29-4d5f-a4c1-a1953b07355b
- https://www.bbva.com/en/economy-and-finance/bbva-to-launch-share-buyback-program-of-nearly-e4-billion-the-largest-ever/
- https://www.investing.com/news/stock-market-news/bbva-gets-ecb-approval-for-396-billion-share-bu yback-program-93CH-4416505
- https://www.reuters.com/business/finance/spains-bbva-announces-464-billion-share-buyback-2025-1 2-19/
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