ANZ is playing a long-term game by pushing out a half-year dividend decision to August, opting not to declare a payment in the eye of the COVID-19 storm.
In some respects — despite raising the ire of retiree investors and others relying on the regular payments — the deferral is a smart move. With winter in Australia starting in a little over four weeks, the risk of a second wave of coronavirus infections remains.
The David Gonski-led ANZ board is of the view that a few more months will provide further clarity around how the economy is managing the pandemic’s fallout — particularly if restrictions are eased — and whether an interim dividend is viable.
It’s a bold move for ANZ, which has paid a dividend to shareholders every six months since 1979. During the recession in the early nineties the bank reduced its biannual dividend to 16c per share in 1991 then again cut to 10c in the latter half of that year.
During the fallout from the global financial crisis in 2009, the interim dividend fell to a low of 46c a share.
The Australian earlier this week flagged ANZ was leaning toward a dividend deferral rather than a heavily reduced payment.
ANZ chief executive Shayne Elliott is adamant the deferral is the right move against the backdrop of COVID-19 and the view of the banking regulator, which urged banks to seriously consider holding off on dividend decisions.
Elliott was at pains to make it clear on Thursday that this was a deferral and ANZ could still declare a first-half dividend if conditions warranted a payment.
“We haven’t said we are not going to do it; we haven’t said we are. We’re saying we are going to bide a bit of time here,” he told this column. “Our retail shareholders are retirees who depend on that income for their livelihood, so we are mindful of that.”
ANZ is reinstating a quarterly update to be able to give investors more insight into its dividend deliberations in August.
Elliott and his chairman are in weekly dialogue with the Australian Prudential Regulation Authority, and those within the ANZ treasury and finance teams are having almost daily contact.
Bank of Queensland made a similar call to defer a dividend decision last month, but National Australia Bank this week declared a 30c interim dividend, slashing the payment from 83c six months earlier. NAB also kicked off a $3.5bn capital raising.
ANZ is loath to pay a dividend as uncertainty leaves the door open to having to raise capital at levels lower than its book value. ANZ’s common equity tier-one ratio fell 60 basis points to 10.8 per cent in the six months ended March 31.
The final call to defer the dividend decision was made by the board late on Wednesday.
The ANZ results came ahead of the May 1 reduction in the federal government’s deeming rates, which are used to calculate potential income from financial assets for those on benefits.
An August decision could still mean a payment comes through in September, which is just two months after NAB’s dividend announced this week is payable.
Mum and dad investors account for about 42 per cent of ANZ’s shareholder register, lower than that of NAB at 48 per cent and Commonwealth Bank which is more than 50 per cent.
It’s a tough call on dividends and attention now turns to Westpac, which reports earnings on Monday.
CBA boss Matt Comyn last month made the point that in the six months ended December 31, the major banks contributed 32 per cent of ASX dividends distributed to shareholders.
“The financial consequences (of suspending dividends) directly would be a problem,” he said.
Regulators in New Zealand and Britain are among those that have taken a hard-line approach, forcing dividend suspension while the pandemic threatens economies and banking system stability.
ANZ’s economic estimates suggest a hard slog ahead for Australia, with employment taking three to five years to recover from the pandemic-induced crisis and house prices declining for three years. “It’s not a classic V (shaped recovery), it’s more like a U … it’s somewhere between a V and a U,” Elliott said on the bank’s view of the eventual economic recovery. “It’s going to take a long time for living standards to be restored.”
But he sees an opportunity for the federal and state governments to use the crisis to spearhead a broad reform agenda, including revisiting levers in the tax system. Companies are already doing their bit on the productivity front, according to Elliott.“They are going to make permanent changes in their cost bases, which will mean a step-change in productivity will come out of this.”
Insurance update
Following on from last week’s item, Insurance Australia Group on Monday joined some of its peers in announcing additional measures for customers hit by the COVID-19 crisis.
The initiative spans brands including NRMA, SGIO and SGIC Home and Motor Insurance customers, who have weathered a drop in household income or become unemployed.
While a little vague, IAG said the new measures would be personalised and include access to premium reductions, the option to change premium payments from annual to monthly without additional costs, reduced excesses and waived cancellation and administration fees.
The measures are available until September 30, with IAG reassessing that as needed.
Locally, Suncorp’s AAMI, QBE Insurance and Youi had already rolled out COVID-19 initiatives for customers.
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