Singapore — Questions have arisen over the timing of DBS Group CEO Piyush Gupta’s recent sale of 300,000 shares, following the announcement of a strong Q3 2024 financial performance and a S$3 billion share buyback program. Critics argue that the optics of these events may not sit well with investors, even as the bank’s stock continues to climb.
Share Buybacks and CEO Sales: Mixed Signals?
DBS unveiled its share buyback initiative on Nov 7, positioning it as a signal of confidence in the bank’s valuation. However, the subsequent disclosure on Nov 11 of Gupta’s share sale — executed on Nov 7 and 8 — has raised eyebrows. The CEO sold 100,000 shares on Nov 7 at an average price of S$41.75 and 200,000 shares on Nov 8 at an average price of S$42.20.
DBS shares jumped more than 6.5% on Nov 7, closing at S$41.70, and climbed another 1.7% on Nov 8 to S$42.40, fueled by excitement over the buyback program. While such sales by CEOs are not uncommon and often occur within restricted trading windows, the timing of Gupta’s transactions has drawn criticism, suggesting he may have benefited from the post-announcement price surge.
Context Matters
While the optics may appear unfavorable, industry observers point out that DBS’s share price rally was not unique. Rival banks OCBC and UOB also saw sharp gains after reporting strong financial results, buoyed by global optimism following Donald Trump’s unexpected re-election in the U.S. Investors anticipate Trump’s policies may curb Federal Reserve rate cuts, benefiting the net interest margins of Singaporean banks.
Moreover, DBS shares continued to rise even after Gupta’s sales were disclosed, closing at S$42.94 on Nov 15, despite going ex-dividend on Nov 14.
Risks and Critiques of Buybacks
The episode highlights the broader tension between shareholders who retain their holdings and those who sell during buyback programs. While continuing shareholders benefit from a higher share of future earnings, questions remain about whether the buyback price truly represents good long-term value.
Companies rarely explain how they determine the intrinsic value of shares being repurchased, leaving room for skepticism. This issue is compounded when insiders, such as directors and senior managers, are among those selling shares during such programs.
DBS’s soaring stock price — driven by record earnings and a return on equity (ROE) of 18.8% in the first nine months of 2024 — might signal strong fundamentals. Yet, with interest rates stabilizing and a future ROE target of 15-17%, concerns linger about whether buybacks at current valuations are prudent.
Potential Solutions
Market regulators and corporate boards may need to consider reforms to address these issues. Proposals include:
- Restricting Insider Sales: Prohibiting senior executives and directors from selling shares during active buyback programs to avoid potential conflicts of interest.
- Valuation Disclosure: Requiring companies to provide a clear estimate of their intrinsic share value and identify the price range within which buybacks are deemed beneficial to continuing shareholders.
- Executive Compensation Reviews: Examining whether paying top executives predominantly in shares aligns their interests with those of shareholders or merely turns them into regular sellers of the company’s stock.
What’s Next for DBS?
While the policies underpinning DBS’s executive pay and buyback programs have served the bank well, evolving market conditions may necessitate a re-evaluation. With investor confidence still robust, as evidenced by the continued rise in DBS’s stock, the bank has an opportunity to lead the way in enhancing transparency and ensuring its practices remain above reproach.
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