CBA chief Matt Comyn flags potential for more capital paybacks
Commonwealth Bank is expected to unleash further excess capital onto investors, even after upping its dividend and starting a record $6bn buyback.
Commonwealth Bank is expected to unleash further excess capital onto investors, even after upping its dividend and starting a record $6bn buyback.
CBA’s full-year results showed the bank would still have $7.5bn in surplus capital as at June 30, after subtracting the $6bn off-market share buyback. The presentation to investors said the capital balance provided flexibility for the board on the “ongoing consideration of capital management”.
Asked about the potential for further capital returns, CBA chief Matt Comyn didn’t provide a direct answer, but said the bank was positioned for several scenarios and had capital flexibility.
“We feel we are well prepared for a range of different economic scenarios from both a capital as well as a loan loss provisioning perspective, and during the half … because it was a good volume growth and lower loan loss experience, we were able to generate 46 basis points of capital, or $2bn,” he said.
“We have modelled various stress scenarios but we also wanted to return that $6bn – which aligns with the $6.2bn that we have received from various divestments – back into the hands of our shareholders.”
Mr Comyn also said the buyback would benefit shareholders through a lower share count, boosting returns and dividends.
Analysts and investors are tipping more to come from CBA on capital management. Goldman Sachs analyst Andrew Lyons said the bank’s residual $7.5bn capital surplus after the buyback created flexibility for the consideration of capital management initiatives.
CBA’s common equity tier one ratio rose in the year ended June 30 to 13.1 per cent, sitting well above APRA’s “unquestionably strong” 10.5 per cent threshold.
Ausbil Investment Management’s executive chair and head of equities Paul Xiradis said the wave of capital returns partially reflected the excess capital that banks put aside in anticipation of higher Covid-related loan losses.
“CBA’s $6bn buyback underscores the balance sheet strength across the banks, with scope for further capital management with pro-forma capital well above APRA requirements and provisioning elevated to deal with Covid-related risks,” he said.
“We are seeing value in an unwind in the excess capital provisioned for bad and doubtful debts being returned to shareholders through a solid dividend and share buybacks.”
Analysts also quizzed CBA’s finance boss Alan Docherty on the bank’s surplus capital. However, he said he was waiting for APRA to provide more clarity around the Basel III capital framework by the year’s end before being any more specific about how much of a capital buffer CBA wanted over the medium term.
“We want to see the final form of the requirements,” he said, adding: “There has been a very good consultation process.”
CBA is also still to bank funds from some of its agreed asset divestments. The sale of CBA’s general insurance business to Hollard Group in June, which is expected to complete in mid-calendar 2022, will see the bank pocket $625m. Adjustments and payments over a distribution alliance will take total proceeds above $1bn.
All eyes are now on Westpac’s capital plans, given it is the outlier among the big four.
ANZ initiated the sector’s capital management wave, last month announcing it would return up to $1.5bn through a buyback. NAB followed with a $2.5bn buyback, despite raising capital last year as Covid-19 panic gripped markets.
CBA’s last chunky capital management return was an on-market buyback in mid 2006 amounting to $500m. In 2004, it conducted an off-market buyback of $532m, and in the late 1990s CBA bought back $650m in shares. Between 1996 and 1999, total CBA share buybacks totalled $2.3bn.
This year’s buyback, which also takes into account franking credits, opens on August 30. CBA says it will be conducted at a discount of between 10 and 14 per cent inclusive to the stock’s market price, or the final application price.
More Coverage
ASIC to scrutinise super funds over mergers
As the industry battles member service failures, the corporate regulator is turning its attention to the rapid consolidation in the market.
Overcharged super fund members told to ‘opt out’ or keep paying
Thousands of Rest Super members wrongly slugged for insurance have been told they need to get in contact if they don’t want to keep paying the fees turned on by ‘accident’ months ago.