By Gareth Vaughan
If any further evidence was needed of the desirability of being a shareholder in Australasia's big four banks, or of how much cash these businesses generate, here it is.
A research report from Sydney-based Deutsche Bank analysts James Freeman and Andrew Triggs estimates the big four will have surplus capital of up to A$2.5 billion each within two years, or a combined A$6.7 billion (about NZ$8.56 billion) with scope for a decent chunk of this to be returned to shareholders.
This comes even as the banks prepare for new, tougher capital adequacy standards through the introduction of Basel III.
"Under the banks' stated capital targets, we believe that (ASB's parent) Commonwealth Bank of Australia, (BNZ's parent) National Australia Bank and Westpac Banking Corporation will have surplus capital of A$600 million to A$1 billion by 2H13 (the second half of the 2013 financial year)," Freeman and Triggs say.
"By 2H14, we estimate the following surplus capital for each major: ANZ A$0.9 billion, CBA A$2.5 billion, NAB A$1.6 billion and Westpac A$1.7 billion."
Freeman and Triggs say although several options exist for capital management, they reckon a A$1 billion share buyback could be achieved by the first half of 2014 for three of the big four, excluding ANZ, or the "neutralisation" of dividend reinvestment plans.
"Alternatively the banks could also increase their dividend payout ratios by an additional 17% to 25% in 2H13 (or 1H14 for ANZ) or pay A20 cents to A64 cents per share in special dividends for CBA, NAB and Westpac in 2H13."
Record A$19 billion in dividends this year
The big four are paying out a record A$19 billion in annual dividends this year, a 7% increase year-on-year despite their combined net profit after tax being down almost 5% to A$22.8 billion. The New Zealand subsidiaries - ANZ NZ, ASB, BNZ and Westpac NZ, delivered a combined NZ$3.2 billion of net profit after tax, up 12% with all bar BNZ posting record highs at a time when the interest rates on their key product - loans - are at historic lows, and lending growth is in the low single digits.
The Kiwi subsidiaries are also on course to pay more than NZ$2 billion in dividends to their parents this year. With their final September year disclosure yet to come in the form of general disclosure statements covering the September quarter, ANZ NZ is set to pay annual dividends of up to NZ$1 billion versus NZ$421 million last year. ASB paid NZ$500 million for its June year versus NZ$280 million last year, and Westpac NZ has thus far paid NZ$480 million versus nothing last year. BNZ has paid just NZ$25 million compared with NZ$330 million last year after issuing 400 million NZ$1 shares to NAB in May to bolster its capital position.
Special dividends not best option for Kiwi punters
Meanwhile, the Deutsche Bank analysts say what form of capital return will be undertaken by each bank will be strongly influenced by their franking balances, with Westpac having the biggest at just over A$1 billion, ANZ the smallest at A$363 million, CBA at A$390 million and NAB at A$447 million.
"Whilst these will grow over time, based on current levels we estimate Westpac could support a A110c fully franked special dividend. On the other hand we believe CBA and NAB will need to consider a combination of on-market buybacks and special dividends given neither have sufficient franking credits," Freeman and Triggs suggest.
They say the biggest threat to the four banks' capital return potential is a blowout in their bad and doubtful debts.
The banks taking the special dividend route would disadvantage their New Zealand investors as Kiwis can't use Australian franking credits, the Aussie equivalent of New Zealand's imputation credits. This effectively means Kiwi investors have to pay tax on the profits made by the bank in New Zealand when those profits have already had New Zealand company tax of 28% paid on them. See more on this from Ernst & Young's Brad Wheeler here where he argues New Zealanders should be demanding the opportunity to buy shares in the New Zealand operations of Australian banks without having to also invest in the parent banks.
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6 Comments
Also, isn't there a set amount of cash in a monopoly game?
Alex, you might wish to scroll up and then down this RBNZ C5 credit .xls and note the ever increasing amounts compared with prior years.
Most foreign banks that failed offshore did so because they failed to roll repo finance of increasingly junk assets they had positioned off-balance sheet - you know the ones, CDOs etc.
The forced sale of the assets, if one could call them that, led to on-balance sheet losses that totally overwhelmed what was left of the regular deposit base - hence insolvency leading to bankruptcy.
You are right Factboy
It is not a difficult task. Like I have said in the past we don't need banks just one organisation to distribute the money in and out. Like the "Stock Exchange" one organisation. A transparent cooperative organisation with predetermined operating criteria. Think of the benefit to the people all the profits stay in their hands and in the community not in the Banks hands and leeched off to some other faceless organisation outside the country.
Any Bankster comments?
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