ANZ’s plans to buy back up to $1.5 billion of shares on-market will boost ASX income investors’ confidence, according to specialist management firm Plato Investment Management.
On Monday, the bank announced the move to support its capital management plan, with ANZ chairman Paul O’Sullivan calling it “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.
On Tuesday, Plato senior portfolio manager Dr Peter Gardner said the move indicates that bank dividends are “likely to continue” over the next two years.
“In the banking sector broadly, we’ve seen in recent months a significant write-back of provisions and strong increases in cash earnings. This strength isn’t just evident among the big four but also within other financial services groups such as Bendigo and Adelaide Bank and Macquarie,” Dr Gardner said.
“The buyback is a prudent approach to capital management, with it likely to reduce ANZ’s Common Equity Tier 1 capital ratio by 35 basis points to around 12.2 per cent, still well above APRA’s unquestionably strong level of 10.5 per cent.”
Dr Gardner believes that the on-market buy-back will results in off-market buyback from ANZ competitors.
“CBA and Westpac do have the franking credits to do off-market buy-backs, which we think remain likely to occur in the foreseeable future. We think Commonwealth Bank remains the most likely candidate, with a very strong balance sheet and more excess capital than its peers,” he said.
“The fact APRA and the boards are willing to consider buybacks at this time strengthens the case for more to come.”
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