MENU

One of the Big Four banks is tipped to double its share buyback in 2018

There aren’t many reasons to love Big Bank stocks in this environment but Morgan Stanley may have uncovered one thing shareholders in Australia and New Zealand Banking Group (ASX: ANZ) can look forward to this year.

Any good news will be welcomed as ANZ share price has been underperforming the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) over the past year.

But then again, so has the share price of the other three Big Banks like the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB).

Shares in the Big Four have dropped between 3% and 6% over the past 12 months when the top 200 stock index has rallied 6.5%.

One of the few things investors can look forward to are share buybacks from the Big Four as the banks look towards capital management strategies as growth slows.

This means there are fewer opportunities for banks to invest in their business and they have to think about other ways to better deploy their excess cash.

Morgan Stanley believes that ANZ is the only one of the Big Four that can lift its share buyback. In fact, the broker is tipping the bank will double its buyback to circa $3 billion this year and another $3 billion in the FY19.

Share buybacks may not put money directly into the pockets of shareholders in the way dividends do, but such programs will ultimately increase the value of ANZ shares, which in turn will lift the wealth of its shareholders.

This is because there will be fewer shares on issue and the bank’s profits and dividends will then be shared across a smaller number of shares. Share buybacks benefits shareholders as they increase earnings per share (EPS) and dividend per share (DPS).

While ANZ has walked away from a deal to sell its UDC Finance business to Chinese conglomerate HNA Group, its asset sales program is expected to bolster the bank’s funding flexibility and lift its CET1 ratio (the bank’s buffer against its liabilities that’s demanded by regulators) by 135 basis points.

“We now assume it completes ~A$1bn of the announced A$1.5bn buyback in 1H18E, with a further ~A$2 billion in 2H18E and ~A$3 billion in FY19E as asset sales are completed,” said Morgan Stanley.

“In our view, these buybacks help mitigate a ~5% earnings hole from asset sales and the pressure on revenue from institutional ‘rebalancing’.”

The broker doesn’t think the other three Big Banks will undertake any further capital management programs this year that has not been already announced.

Looking for blue-chip stocks with better growth options than the Big Banks? We have good news for you as the experts at the Motley Fool have identified three that may prove to be better value.

Click on the link below to get this free report and to find out what these stocks are.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.