The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is on watch today after the big bank announced a $1.5 billion shareholder return.
ANZ’s big shareholder return of cash
The big bank announced on Monday evening that it plans to buy-back up to $1.5 billion of shares on the market as part of its capital management plan.
ANZ’s Chair Paul O’Sullivan explained why the bank came to the decision of a buyback over other uses of the cash:
“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. After reviewing options, we consider an on-market buy-back to be 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.”
The purchase of shares is likely to begin in August 2021.
The bank will support customers
ANZ decided on this $1.5 billion amount after considering the fact that some parts of the country are in lockdown and this impacting parts of the economy. The big ASX bank said that this was a modest return of surplus capital to shareholders.
The ANZ CEO Shayne Elliot said: “Just as we supported our customers through previous lockdowns we stand ready and able to provide assistance to those that need it. The strength of our business means we are well placed to fulfil needs of our customers and the broader community while still actively managing our capital.”
How will this affect the balance sheet?
ANZ reminded investor’s that its balance sheet was strong as at 31 March 2021, with a Level 1 common equity tier 1 (CET1) capital ratio of 12.2%. That healthily exceeded APRA’s strong capital requirement of 10.5%.
This on-market buy-back is expected to reduce ANZ’s March 2021 CET1 ratio by approximately 35 basis points.
My thoughts on ANZ’s share price and buyback
Returning some capital to shareholders seems like a good move considering how much it is has on the balance sheet at the moment. If it can’t use it productively, it may as well return some of it to shareholders.
ANZ is probably one of the more compelling banks right now, with a cheaper valuation on an earnings multiple basis. But there are plenty of other ASX dividend shares I’d rather buy for my portfolio for the long-term which may offer more consistent dividends during recessions (like COVID).
