The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share buyback caught experts off guard and puts other ASX 200 bank shares under the capital return spotlight.
The ANZ Bank share price jumped 1% to $27.43 in morning trade after it announced yesterday evening that it would undertake a $1.5 billion on-market share buyback.
The bank is bucking the market gloom. The S&P/ASX 200 Index (Index:^AXJO) dropped 0.2% at the time of writing with all ASX bank shares falling into the red.
The Commonwealth Bank of Australia (ASX: CBA) share price lost 0.5%, National Australia Bank Ltd. (ASX: NAB) share price shed 0.7% and Westpac Banking Corp (ASX: WBC) lost 0.9%.
ANZ share buyback catches experts by surprise
The market was expecting a capital return bonanza. But most experts didn't think it would come this early and they didn't think ANZ Bank would be the first cab off the rank.
One would have thought that the COVID-19 lockdowns, which has now spread to South Australia, would have given ANZ Bank reasons to hold off on pulling the trigger.
After all, ASX 200 banks will have to offer financial assistance to borrowers hit by fresh COVID restrictions across Sydney, Melbourne, and now Adelaide.
Capital return floodgates to open for ASX 200 banks
Experts thought that if any big ASX bank was to announce a capital management program, it would be Commonwealth Bank.
Commonwealth Bank is the only one of the big four that will release its full-year results in August. That is typically the time that boards announce such programs.
"We are surprised at the timing of the buyback announcement given continuing COVID uncertainty, regulatory relief, and expected rise in deferred loan balances," said Citigroup.
"However, ANZ, with a CET 1 capital position of 12.4%, felt a buyback could be conducted despite the uncertainty."
How big will capital returns be for ASX 200 banks?
The broker believes that Commonwealth Bank will announce a $5 billion off-market share buyback with its results on 11 August. Westpac and NAB shouldn't be far behind either with capital returns of their own.
However, capital returns could also come in the shape of a special dividend. Goldman Sachs is forecasting Commonwealth Bank to declare a $3.5 billion special dividend on top of its regular final dividend next month.
First but not last
Coming back to ANZ Bank, this share buyback won't be its last. Morgan Stanley reckons ANZ Bank will cough up a total of around $3.5 billion of on-market buybacks over the next two years.
But the broker acknowledged that bigger buybacks are possible given the strength of ANZ Bank's balance sheet.
The flood of capital returns from ASX 200 banks will provide an important support for the sector. Many investors believe these shares are looking fully valued after rallying hard over the past year.
