ANZ $1.5bn share buyback overtakes CBA

ANZ has usurped Commonwealth Bank and will kickstart the sector’s wave of billions of dollars in capital returns to investors.

ANZ is to launch a share buyback of up to $1.5bn. Picture: NCA NewsWire/David Geraghty

ANZ has usurped Commonwealth Bank and will kickstart the sector’s wave of billions of dollars in capital returns to investors, with a share buyback of up to $1.5bn.

On Monday night, ANZ shrugged off the impact of extended Covid-19 lockdowns across Victoria and Greater Sydney, to say it would likely start its capital management plan in August. It also flagged it may return more than $1.5bn in the future, if prevailing operating conditions allowed.

Buying back stock on the sharemarket is a key way that banks return capital to investors to help boost return on equity, while another is by paying a special dividend.

Prior to the latest pandemic lockdowns, banking analysts had tipped the majors would start returning capital this year, and Morgan Stanley had pencilled in expectations of $15bn being returned across the sector.

In May, ANZ signalled it may embark on a return of capital to investors, given it was holding $7bn more than regulators require.

ANZ and its rivals have large capital buffers above the banking regulator’s unquestionably strong threshold, as they held onto proceeds from asset sales during the pandemic uncertainty last year.

“Despite the very real challenges being experienced by many of our customers, we have the financial strength to continue to support our customers, while also returning surplus capital to shareholders,” ANZ chairman Paul O’Sullivan said in Monday’s statement.

“After reviewing options, we consider an on-market buyback to be the most prudent, fairest and flexible method to return capital in the current environment.

“Our capital position may allow future capital returns to be considered, however we will continue to focus on balanced and prudent outcomes for all stakeholders,” Mr O’Sullivan said.

ANZ’s reported level two and level one common equity tier one capital ratios as at March 31 were 12.4 per cent and 12.2 per cent respectively, well above the unquestionably strong capital requirement of 10.5 per cent.

The bank said the on-market buyback would reduce ANZ’s March 2021 capital ratio by about 35 basis points.

ANZ chief executive Shayne Elliott said the bank had assessed the external environment and was only returning a “modest amount” of capital.

“After taking into consideration the ongoing pressures in some parts of the economy due to Covid, including the current lockdowns in parts of the country, the strength of our balance sheet and ongoing financial performance means we are in a position to return a modest amount of surplus capital,” he added.

“Just as we supported our customers through previous lockdowns we stand ready and able to provide assistance to those that need it. The strength of our business means we are well placed to fulfil needs of our customers and the broader community while still actively managing our capital.”

Analysts had been expecting CBA to pull the trigger first on a capital return to shareholders, given it reports full-year profits next month. ANZ, Westpac and National Australia Bank have a September 30 year end.

Credit Suisse banking analysts on Monday posited – ahead of ANZ’s announcement – that extended Covid-19 lockdowns may delay capital management initiatives.

“The lockdowns bring additional uncertainty around BDDs (bad and doubtful debts) due to the unknown impact they are likely to have on customers’ ability to pay back loans,” they said.

“This could potentially delay any capital management initiatives banks were likely to announce in the near term. With CBA reporting its full-year 2021 results on 11 August 2021, we could potentially see a delay in any capital management they were to announce due to the increased uncertainty the lockdowns have introduced.”

“For the most, the sector has brushed aside lockdowns, with only the second Melbourne lockdown having a negative impact on relative performance.”

On a pro-forma basis, Credit Suisse said CBA had the biggest surplus capital position above the unquestionably strong threshold, followed by Westpac.

Last month, Morgan Stanley said the big four banks were sitting on $19.5bn to $28bn of surplus capital, and would return about $15bn to retain a conservative stance as the pandemic played out.

In May, Mr Elliott and the ANZ board said they wanted to get a read on the federal budget, as well as assessing several months of economic data, before starting a capital return.