Royal commission threatens ANZ share buybacks
POSSIBLE fines and high costs related to customer remediation or restructuring could threaten the size of ANZ’s share buybacks, industry experts say.
According to analysts at investment bank Morgan Stanley, potential unknown costs resulting from the banking royal commission – including higher fines and changes to rules on balance sheet strength – could erode ANZ’s excess capital. That means the bank’s share buybacks would be lower than previously forecast, the analysts say in a report for investors.
It comes after ANZ in June announced a $1.5 billion share buyback. The buyback is only a quarter complete.
Companies often carry out share buybacks as a way of returning to investors funds that are deemed excess, and to support the price of their stock.
Morgan Stanley estimates ANZ will carry out another $3 billion worth of buybacks in the next two financial years.
“The current buyback is tracking behind our forecasts that assume $500 million is completed in the second half of 2018 and $1 billion in the first half of 2019,” the report says.
“Beyond that, we expect a further $3 billion of buybacks in the second half of 2019 and the first half of 2020, following completion of the previously announced asset sales.”
The investment bank cautioned that its estimate for a cumulative $6 billion in buybacks might miss the mark if fines and customer remediation resulting from the royal com- mission was greater than the $150 million analysts estimated. It also said ANZ’s excess capital would be reduced if it was used to fund restructuring and a reinvestment provision, or if there were changes to rules on balance sheet strength – potentially next year.
“ANZ has more scope than peers to navigate the difficult transition facing Australian banks,” the analysts said.