Shares in Australia & New Zealand Banking Group (ASX: ANZ) are leading the S&P/ASX 200 (Index: ^AJXO) (ASX: XJO) higher today after the bank announced plans to buy back around $1.5 billion worth of shares on market.
For ANZ shareholders this is good news as fewer shares outstanding means that earnings and dividends per share should move higher over time.
The group reported that it has recently bought around $500 million worth of shares back on market in order to help negate the dilutory effects of its dividend reinvestment program and share-based compensation offered to some employees.
Today the group also announced it has completed the sale of its 20% stake in Shanghai Rural Commercial Bank as its retreat from its Asian expansion strategy continues under its chief executive Shayne Elliott.
A series of recent asset sales including the sale of its life insurance business to Zurich AG help provide the cash to launch the buy-back as ANZ like other banks including Commonwealth Bank of Australia (ASX: CBA) still has to meet minimum capital reserve requirements set by the banking regulator APRA.
These requirements mean the banks must keep enough capital in reserve (cash or liquid money market assets) as a percentage of total assets (loans) on a risk weighted basis. ANZ's CFO reported the buy-back would not impact ANZ's "unquestionably strong" capital backing, with the 40 basis point negative impact of the buy-back broadly offset by the benefit of the Shanghai Bank asset sale.
Big bank shares remain a favourite of Australian dividend seekers which comes as no surprise given their tax effective franking credits. The pick in the space remains CBA in my opinion given its technological lead, prudent risk management and recent share price wobbles on the bank of the anti-money laundering failings and subsequent scandal.
