ANZ Share Purchase Plan
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ANZ retail investors can invest in the ANZ Share Purchase Plan offering investors the chance to subscribe for up to $15,000 worth of ANZ shares.
Shares can be applied for in lots of $1000 at a discounted price of no more than $14.40. With the current share price around $16.00 this offers investors an instant profit of around 10% at current market valuations.
The ANZ share purchase plan is likely to be well subscribed and scaled back applications would be unlikely considering banks would be happy to accept as much capital as possible from the market at the moment.
The deadline for applications is 2 July.
ANZ eye RBS Asian assets after $2.5 billion capital raising
ANZ has gone to the market and secured $2.5 billion in the space of 24 hours to support grand plans for securing the key assets from the Royal Bank of Scotland auction of it’s asian banking assets.
ANZ hopes to secure $2.85 billion in all, with a further $350 million to be secured through a share purchase plan. ANZ is competing with HSBC and Standard Chartered for the RPB assets but rumours indicate both failed to submit their bids for the assets by the cut-off date.
This would put ANZ at a strong advantage if the RBS wanted to quickly liquidate their assets. The raising of $2.5 billion was three times oversubscribed and at $14.40 per share, a discount of 7.5% to the stocks last trade of $15.57 before the announcement.
If successful in the bid the ANZ would secure a stronger position in Asia and would be well on the way to developing into the super-regional bank that CEO Mike Smith has been indicating since taking the helm.
Commonwealth Bank and Westpac dominate rival Big 4
The Australian publised a good article during the week indicating the amazing growth of retail deposits experienced by the merged CBA-BankWest which held a 40% share of retail deposits among the Big Four banks with a $137.1 billion deposit book, and the merged Westpac and St George banks had a 28% share with $98.6 billion.
Both Commonwealth and Westpac held a 68% share of the big four Australian banks retail deposits by March 2009 according to the review commissioned by Brandmanagement.
It was also revealed that the NAB has a $54.9 billion retail deposit book and ANZ a $56.4 billion book.
Which Australian bank has a plan for growth?
The Australian banking sector like the global banking sector has become risk averse and in a time where banks around the world are falling over the Australian banking sector still looks strong.
But if you were thinking a few years out and wanted to invest now, where would you put your money? The Australian banks have mostly followed the same path od de-risking and focusing on Australia so if you were investing you would want to consider what growth options they are aiming to access.
It would appear growth options are limited in Australia but and that NAB, Westpac and Commonwealth Bank all seem to be aiming at Australia for the future both short and long term. ANZ is the only bank that is aiming for a different path, they see growth in Asia as the major driver in the future.
ANZ have a defined strategy under Mike Smith, much like when McFarlane was in charge in the early days at ANZ. ANZ soon took the mantle of the best managed bank under McFarlane and I expect in a few years time people will be singing the praises of Smith.
Asia is a developing region and for business it is an area that needs to be invested in to benefit from growth as opposed to investing in old growth markets of Europe and Australia.
So which do you think is the best Australian bank if you are looking at a three to five year perspective?
Westpac leads in Australian banking sector
Westpac showed why it’s the most highly regarded Australian bank with a solid $2.18 billion profit amid a rise in debt provisioning to $1.6 billion on an increase in bad loans.
The interim result to 31 March indicated the rising bad debt impact on Westpac as has recent results for all the major banks. Gail Kelly the CEO of Westpac indicated that the economy was likely to worsen but Westpac was well prepared for the tougher conditions ahead.
Westpac anounced a cut to the first half dividend from 70c to 56c to preserve capital in what is stil very tough banking conditions. Of particular concern to Westpac was the increase in provisions of $156 million in the margin lending operations. In a positive, Kelly indicated the margin loan book had been reduced from $6.6 billion to $4 billion indicating this was managed well.
After seeing all the results it would appear Westpac delivered the best result overall and appear to be well supported by the strong focus on Australia but while they are managing risk what are their growth plans?
ANZ announcement better than expected despite rise in bad debts
NAB surge in bad debts amid profit announcement
The NAB commenced the Australian bank reporting season with a surge in bad debts to indicate the recession is finally taking a big toll on the Australian economy.
NAB’s bad debts rose from $726 million to $1.8 billion as the worsening business and consumer conditions start to show considerable strain on the banking sector. Cash earnings fell to $2 billion (down 9.4%) with rising impairment charges and higher funding costs. The net profit was only down 0.9% to $2.66 billion.
The NAB also announced a dividend cut as previously foreshadowed, the cut of 24c per share took the dividend to 73c per share. The cut will preserve capital and the dividend will also be partially underwritten by a $500 partially underwritten dividend reinvestment plan.
NAB shares retreated 76c to $21.82, as the bank slashed its dividend by 24c to 73c to preserve capital, and backed it up with a $500 million raising through a partly underwritten dividend reinvestment plan.
The result did nothing to soothe the markets expectations of further pressures on the banking sector and accordingly NAB and the other banks were sold off amid concerns of continued hard economic times.
Banks cut rates in response to RBA decision
With the RBA cutting rates by 0.25% in April to 3.00%, a 49 year low, the bank gave a clear indication the market is nearing its low in the interest rate cutting cycle.
The RBA is likely to lower the offical cash rate by only another quarter to a half percent before it reaches the bottom of the rates cycle. From that point it will only stay low for a short period it would seem until rates start rising if previous recessions are anything to judge.
In response to the bank cuts Westpac, St George, Commonweath Bank and ANZ all cut their rates by 0.10%, NAB failed to pass on the cut. The decision by the banks gives the RBA some additional margin to cut further in a time when the economy is about to start the early phase of what is expected to be a short and sharp recession.
While all the banks have been under considerable funding pressure the majors have all come through this with a massive increase in market share as the expense of the second tier banks and the non-bank lenders. The majors now have easliy in excess of 90% market share and margins considerly higher then previosuly. Despite the rise of loan defaults the additional margins by the banks have given them a tremendous position of strength that few global banks share.
One thing is certain that the Australian banks are world leading and banks like ANZ who are looking to expand now into Asia are doing so from a position of strength that will setup growth for the next decade.
ANZ announce dividend cut, who’s next?
ANZ have been the first of the big four banks to announce a cut to their dividend as the banks start to feel some of the pain that has devastated the banking sector overseas.
ANZ announced a cut of 25% to their dividend which in direct response to rising corporate debt levels. This will reduce the annual dividend from $1.36 to a little over $1 and will save the ANZ approximately $500 million.
The announcement came as the ANZ delivered an update for the first four months of the reporting year revealing a update on their current operations.
The ANZ have boosted their provisions for bad and doubtful debts to between $2.4 and $2.5 billion, this is broadly in line with industry expectations. Cash earnings were up 18% on the same period last year but the increased impairment costs drove the cash earnings down 11%. ANZ revealed they have been a beneficiary of cash inflows as income growth grew 16%.
One point of note was the 125% increase in the Asian division which CEO Michael Smith has clearly identified as the future of the company. Although the Asian division is still only small the next couple of years will be pivotal in its Asian stategy and they will have to invest throughout the downturn to ensure building a viable market share.
So now the ANZ have cut dividends, who is next? The Commonwealth and Westpac have intimated they may need to cut but I suspect NAB will be next to the table flagging a cut. Either way the coast is now clear and expect all the banks to flag a cut between 10-30% in the coming weeks.
Westpac suffer rise in bad debts
Westpac this week revealed a dramatic rise in bad debts in the first quarter as the economic gloom hits the domestic economy and arguably the best placed Australian bank to deal with the economic crisis.
Westpac revealed a rise from $144 million to $800 million for inpairment costs resulting from the economic crisis from levels a year ago. Westpac had an bad debts of $360 million alone from three major companies, $300 million alone was from Babcock and Brown.
Westpac revealed a strong rise in revenue in the first quarter amid rising deposits which have helped reduce funding costs. The focus in increasingly turning to which bank will be the first to cut dividends. Such a decision will be punished by investors as shareholders have become use to receiving increasing bank dividends year on year.
Westpac are still perhaps best prepared to at least maintain dividends but neither bank will want to dip into capital to fund dividend payouts in such an period of credit deterioration.