Solid buffer lets ANZ ponder share buyback

ANZ has given a strong signal it may embark on a bumper return of capital to investors within months.

ANZ is sitting in a strong position, improving its regulated safeguard capital holdings to $7bn more than required. Picture: NCA NewsWire / David Geraghty

ANZ has given a strong signal it may embark on a bumper return of capital to investors within months, given it is holding $7bn more than regulators require.

The bank’s chief executive Shayne Elliott said ANZ continued to assess the prospect of capital return to shareholders, which historically has been in the form of buying back shares.

Mr Elliott and the ANZ board wanted to first get a read on next week’s federal budget and how it will play out in the economy, as well as assessing several months of data following the March removal of JobKeeper payments before starting a capital return.

“We need greater clarity about the economy … there are two really important gates we need to get through,” he said when asked about what would drive a decision to return capital.

“How many small businesses were only surviving because of the JobKeeper and now it’s gone? They’re limping along … we’ll only get that data after a couple of months.”

The bank’s common equity tier one capital ratio improved to 12.4 per cent in six months ended March 31, from 11.3 per cent in the prior half. That is well above the banking regulator’s “unquestionably strong” threshold of at least 10.5 per cent, but ANZ said its strategy was not to dip below 10.8 per cent over the longer term.

Mr Elliott is open to ANZ undertaking mergers and acquisitions if they make sense, and the bank is said to have been an underbidder on the ME Bank sale. Bank of Queensland agreed to acquire ME in a $1.325bn purchase.

Citigroup’s local retail banking operations are now on the block given it has flagged its exit from retail operations across 13 markets.

Citigroup’s Australian retail arm has a residential mortgage book of $4.1bn and investor loans of $2.44bn. Its credit card business houses $3.6bn - making it the fifth largest player in the domestic market - while the bank has local deposits of $7.3bn.

“Would we want to have a bigger position in … our core business of home loans, cards, payments, trade? Yes we would,” Mr Elliott said when asked which areas ANZ may like to bulk up in. “They are broadly scale driven businesses, so if you run them well, being bigger in some of those things is generally better. It allows you to compete a bit more effectively.”

Mr Elliott said unlike Westpac - which is assessing a demerger of its New Zealand operations - ANZ was committed to its business across the Tasman, despite increasing capital and other regulatory requirements there.

“We’ve done the math and said actually there’s more downside than upside for us (in exiting NZ),” he said.

“We are not blind to reality, it’s gotten harder to operate a business in New Zealand. What we’ve done there is just reposition the business.”

Due to the regulatory changes, Mr Elliott said ANZ - the largest player in NZ among the major Australian banks - had to rethink pricing, costs and the NZ markets it operates in.