Terry McCrann: What now for big bank dividends?
Australia’s big four banks normally march in lockstep. But in a break from tradition the banks have taken very different approaches to their interim dividends, writes Terry McCrann.
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The four big banks have taken very different approaches to their interim dividends. It’s the first time we’ve seen such a wide divergence in decades from the group which normally marches in lockstep.
What does it mean for their final dividends, the chances of them coming back to shareholders for new capital, and indeed for each of them individually and as an all-important investment category, into 2021 and beyond?
These are probably the single most important questions for investors — most especially for mum and dad investors either as direct shareholders or via SMSFs — beyond the ‘big one’: what happens to the overall market which like every market in the world is directly hostage to Wall St?
At one extreme the CBA was the only one of the four to pay an unchanged $2 dividend and also not have a share issue.
NAB was on its own in paying a dividend — more than halved to just 30c — and having a $3.5 billion share issue. The issue might, it should, be increased as NAB has only allocated $500 million of the $3.5 billion for retail holders in the SPP later this month.
ANZ and Westpac did not go to shareholders for more capital but they also both did not pay any dividend.
The thing to understand is that each bank did exactly what was right for both the bank and for its shareholders.
CBA which interim-balanced at end-December was reporting before there was any impact from the virus, far less the economic lockdown and enforced recession. It therefore did not have the big virus-prompted bad debt provisions of the other three.
So it was able to pay the full dividend and still have a — very — comfortable 11.7 per cent tier-one capital position.
Importantly, this meant CBA could have alone of the four paid the full dividend and made the big virus-prompted bad debt provisions of the other three and still not required a capital-replenishing share issue.
This puts it in a strong position to ride into what this final June quarter throws at it (and us). Indeed, even after it does make those post-December provisions, it would be in the best capital position of the four.
NAB had the weakest (but still good) capital position going into the virus. After making its bad debt provisions, it was always going to have to raise fresh capital even if it had paid no dividend. Given that it had to do, making the issue a little bigger and paying nearly $1 billion of it back in the dividend, actually made sense.
Dividends and new share issues are different animals. Giving especially super funds a dividend with its franking credits and then offering them a share issue at a discount to market makes sense.
In the cases of ANZ and Westpac, they did not have to have share issues provided they did not pay a dividend; so it equally made no sense for them to have paid a dividend and then taken it back with a share issue.
These three banks – ANZ, NAB, Westpac – go into their second halves well provisioned and with strong capital bases.
Originally published as Terry McCrann: What now for big bank dividends?
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