How Australia and New Zealand Banking Group could return billions to shareholders in 2018

News that the New Zealand Overseas Investment Office (OIO) is blocking the sale of Australia and New Zealand Banking Group’s (ASX: ANZ) UDC Finance to Chinese conglomerate HNA Group could prompt investors to question if this will impact on the bank’s share buyback program in 2018.

The market had cheered news of ANZ’s $1.5 billion on-market share buyback that was announced just a few days ago and the bank has confirmed that the OIO’s decision will not have any impact on the share purchase.

Most analysts are expecting the bank to undertake more of such capital return programs in the new year and the good news is that I don’t believe the scuttling of the $600+ million sale of the auto and asset financing business is enough to force ANZ to shy away from such initiatives.

In the grand scheme of things, the additional upfront cash it would have received from the sale of UDC Finance isn’t very material, especially if you consider that the actual profit from the sale (after goodwill and transaction costs) was estimated to be around $100 million.

That amount will probably have to be removed from forecasts. What’s more, UDC Finance is profitable so it shouldn’t drag on the bank’s profits going forward (assuming HNA walks away and the bank doesn’t find another buyer for the business).

ANZ has not committed to any future capital return programs but is probably the best placed to return cash to shareholders through share buybacks from its asset divestments compared to the other banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB).

ANZ’s divestments include the sale of its wealth management business to IOOF Holdings Limited (ASX: IOF) for circa $1 billion and it has completed the sale of its 20% stake in Shanghai Rural Commercial Bank.

HNA could appeal the OIO’s decision but I wonder if it will given the Chinese government’s recent crackdown on offshore acquisitions by its conglomerates. The deal to buy UDC Finance was negotiated at the start of this calendar year and the New Zealand regulator may have helped HNA dodge a bullet.

Regardless, I have a cautious outlook for the banks in 2018 as I see a number of headwinds that are likely to cloud the sector. I own shares in three of the Big Four banks but I am underweight on the sector and this is unlikely to change in the foreseeable future.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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