Good news Fools! We might just get our Santa Rally after all with the risk-on trade is making a comeback as we head into the Christmas holidays.
The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index recovered from the morning market weakness and is up 0.5% during lunch time trade with most sectors (apart from the defensives like real estate) rallying.
This includes bank stocks with the Australia and New Zealand Banking Group (ASX: ANZ) share price jumping 1.6% to $25.56, National Australia Bank Ltd. (ASX: NAB) share price gaining 1.2% to 24.18, Westpac Banking Corp (ASX: WBC) share price adding 0.4% to $25.56 and Commonwealth Bank of Australia (ASX: CBA) share price improving 1% to $70.75.
However, the CBA share price may have an extra reason to outperform after the analysts at Macquarie Group Ltd (ASX: MQG) said it was increasingly likely that the bank will pay a special dividend or undertake an off-market buyback in FY19.
CBA's dividend gift
ASX-listed companies have limited time to maximise the use of franking credits as the Federal Labor opposition party is looking to remove the refund of these credits that's over a shareholder's tax obligation.
The election probably won't be held until May next year but the chance of Labor taking office is high.
"To maximise the value of franking credits, we expect banks to look for avenues to distribute them. Across the majors, CBA and WBC have material franking balances," said Macquarie.
"Given CBA's capital surplus following the divestment of its funds management business, we see an increased likelihood of an off-market structured buy-back or special dividend in 2019. We estimate that this could be ~1% accretive to CBA's EPS [earnings per share]."
An off-market buyback or paying a special dividend will allow the bank to attach franking credits to the payment.
Spreading goodwill
But there's another reason why CBA might want to be extra generous to shareholders that Macquarie didn't touch on – and it's nothing to do with this being the season for giving.
There's a lot of anger directed at the banks right now with Westpac suffering a large and humiliating shareholder strike against its remuneration report. NAB is believed to be bracing for a similar fate when it fronts investors at its annual general meeting (AGM) on Wednesday.
Both these banks don't have the financial muscle to be generous to shareholders or they might have gifted some capital back to shareholders to quell the revolt (no yellow vest necessary).
The only other bank that's seen as having sufficient financial headroom to undertake a capital return is ANZ Bank, and this is even if the sale of its wealth business, OnePath, to IOOF Holdings Limited (ASX: IFL) is scraped.
T'is the season to be giving capital back to shareholders as a number of other ASX blue-chip stocks have (or are in the process of) undertaken large scale buybacks.
BHP Group Ltd (ASX: BHP) is doing one at the moment (the buyback tender deadline is tomorrow) while Rio Tinto Limited (ASX: RIO) completed one recently.
