ANZ unveils $1.5 billion share buyback program

  • By Elizabeth Fry

ANZ will buy back up to $1.5 billion of shares as part of its capital management ahead of the rest of the sector which is expected to return surplus capital to shareholders through share buybacks and dividend top-ups. 

Morningstar predicts that $30 billion will be returned to shareholders via off-market buybacks within the next 12 months and a further $4 billion returned through dividends between fiscal 2021 and 2024.  

It expects the Commonwealth Bank to unveil a $5.5 billion off-market buyback program in August. 

ANZ chairman Paul O’Sullivan said after careful consideration the bank decided that an on-market buyback was the best “most prudent, fairest, and flexible” method to return capital in the current environment. 

“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,” he said.  

The ANZ chair flagged the possibility of further capital returns in the future but said the bank will continue to focus on “balanced and prudent outcomes for all stakeholders”. 

ANZ chief executive officer Shayne Elliott called the buyback modest and pointed to the strength of the bank’s balance sheet and ongoing performance 

“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 to shareholders through a buy-back of shares on-market,” he said. 

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

Capital impact 

ANZ’s said level two and level one common equity tier one capital ratios as of March 31 was 12.4 percent and 12.2 percent respectively, well above APRA’s “unquestionably strong” capital requirement of 10.5 percent. 

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

A purchase of shares is likely to begin in August 2021. 

Morgan Stanley noted that while ANZ's capital position is far stronger than it was a year ago, ANZ’s decision follows APRA's announcement that it would provide regulatory relief for banks which allow borrowers affected by Covid to defer their loan repayments. “While the Sydney lock-down is currently not scheduled to extend beyond this month and repayment deferrals are likely modest at this stage, APRA's proposed treatment is consistent with the approach taken in 2020 and provides banks with greater certainty in relation to their capital planning.” 

The broker expects ANZ to return $3.5 billion through a buyback program.  

Morningstar’s Nathan Zaia is convinced that returns to shareholders are the best use of excess capital. “Growth outside the core business would likely be a worse use of capital and counter to the post-banking royal commission regulatory push to simplify the banks,” he said.  

“Hence, we expect the banks to focus on the core business of lending, primarily to housing and secondarily to businesses. We do not expect the core banking operations to require the current capital levels, particularly as we forecast relatively pedestrian credit growth of around 3 percent annually for the next five years.   

Neither does Zaia see the major banks making any large acquisitions, such as when they diversified into wealth management roughly 20 years ago.   

“We think the lack of success from those efforts, coupled with regulatory pressure, is likely to make the banks circumspect on future material acquisitions."  

Moreover, given the market share each of the majors has in the mortgage market, the analyst finds it difficult to see the antitrust regulator giving the all-clear for them to buy a smaller lender such as AMP or Suncorp Bank.