ING and Shell will buy back billions of euros worth of their own shares. The companies announced this today when presenting their figures for the first quarter of 2024. Why are ING and Shell buying up parts of their own companies and who benefits from it?
ING’s net result amounted to 1.58 billion euros in the past quarter. The bank earned much more from their customers (such as mortgages, service costs and commission), but saw interest income decline. ING wants to buy back shares for a maximum of 2.5 billion euros
Shell made a profit of 7.2 billion euros. More than two billion less than a year ago, but hundreds of millions more than the previous quarter. The group made good money mainly from oil and chemicals. Income from gas also did not disappoint. Shell has announced a new purchasing program worth almost 3.3 billion euros.
Appeasing shareholders
The companies mainly buy back shares to appease their own shareholders. Because the bank and the oil company are purchasing shares themselves, there will soon be fewer in circulation. This ensures that the value of those shares in circulation increases and that shareholders receive more dividends. You can view a dividend as a profit distribution on a share.
Buying back its own shares also exudes confidence, says economist and stock market analyst Jacob Schoenmaker. According to Schoenmaker, those with an account at ING or customers who need gas do not notice much of the purchasing programs, it is really for the shareholder.
Not every company is suitable for buying up its own shares, says Schoenmaker. “At a modern tech company like Nvidia, investors would like to see investments in the company.”
At traditional companies such as ING and Shell, the future is much more uncertain, he says. That’s why customers want the money more than the investment.
Share buybacks have long been a proven method for companies to keep shareholders satisfied. It happens much more often lately, says Schoenmaker. For example, tank storage company Vopak, financial services provider NN Group and construction company BAM announced last year that they would buy back their own shares.
Cutting dividend ‘mortal sin’
Increasing the dividend without buying back shares is also an option according to Schoenmaker. He explains why this is not happening now. “Purchasing shares gives companies the freedom to give something extra in good times. It is really incidental. Companies only do this if they can structurally handle it, because if you increase it now, the investor will take it into account next year.” by at least the same amount.
According to Schoenmaker, the fact that buying back their own shares is still fiscally attractive for companies is another reason to do it. “From 2025, companies will have to pay more tax for the purchase of their own shares,” says Schoenmaker. “In addition, cutting dividends is a cardinal sin. If you do that, investors will immediately walk away. For example, in 2020, the first year of corona, Shell only cut the dividend for the first time since the Second World War.”
Company management can also benefit from share buybacks. Schoenmaker: “It can be a means of boosting the price in the short term, giving management a nice bonus.”
Milieudefensie is not happy with the ING share buyback. The environmental organization would prefer to see the bank invest the billions in a better climate plan. According to ING CEO Steven van Rijswijk, shareholder payments and the bank’s climate policy are “completely different things”.
Tags: large companies ING Shell buy billions shares RTL News
