Melbourne’s two Big Four banks – ANZ and now NAB – have beaten the Sydney-based Commonwealth and Westpac to the buyback club.
And in making its announcement on Friday the NAB trumped its Melbourne rival by revealing a $2.5 billion buyback, $1 billion more than the ANZ.
But the NAB’s buyback also confirmed that it went overboard in early 2020 in rushing to market to raise $3.5 billion and ended up taking $3.75 billion as small investors swamped the bank with over-subscriptions.
In late April, 2020, NAB revealed plans for a $3.5 billion raising at $14.14 a share – $3 billion came from big shareholders and half a billion was planned to come from the bank’s enormous retail base.
Instead, the retail base bobbed up with hundreds of millions of dollars on extra requests for shares, forcing the bank to up the retail raising to $750 million.
So the NAB increased the size of its share purchase plan (SPP) offer to $1.25 billion from the initial $500 million. Now much of that will be mopped up, using the extra capital the NAB didn’t need.
And those shareholders who took up the issue at $14.14 have made a killing with the shares trading at $25.77 on Thursday and hitting a recent high of $27.85 in early June of this year. Now they get to crystalise that huge profit in a market priced buyback.
The extra $1 billion in the buyback (compared to the ANZ’s program) seems to be a tacit acknowledgement by the NAB that it raised too much capital in the depths of the buyback and has been unable to do anything with it in the intervening 14 months.
NAB said in Friday’s announcement that it was conducting the buyback to “progress managing its Common Equity Tier 1 (CET1) towards its target range of 10.75–11.25% from a current level of just nearly 12.4%, almost 2% above APRA’s regulatory minimum.
The announcement leaves the Commonwealth and Westpac (two Sydney based banks) with decisions to make on buybacks. The CBA is expected to reveal the size of its buyback when it reports its 2020-21 results in just under three weeks’ time (August 11).
Westpac doesn’t balance until September 30 (like the ANZ and nAB) but is embroiled in a massive alleged fraud valued at more than $400 million and has a capital penalty of $1 billion imposed by APRA as punishment for the 23 million breaches of money laundering rules.
Subject to market conditions, NAB said it expects to commence the buy-back in mid to late August.“Through the pandemic, NAB has continued to build its financial strength while providing significant support to our customers and colleagues,” NAB CEO Ross McEwan said in the statement to the ASX.
“Our support for customers and colleagues continues through ongoing lockdowns and as the COVID- 19 situation evolves. At the same time, NAB’s strong financial performance, combined with the divestment of MLC Wealth, has created an opportunity for NAB to reduce our surplus capital while retaining a strong balance sheet during these uncertain times.
NAB said it continues to operate well above APRA’s Unquestionably Strong benchmark of 10.50%, with a reported CET1 capital ratio of 12.37% at Level 2 and 12.40% at Level 1 as at March 31 this year (its interim balance data).
The $2.5 billion on-market buy-back will reduce the CET1 capital ratio at Level 2 by around 60 basis points. Following the sale of MLC Wealth to IOOF as well as previously announced items, NAB’s pro forma March 2021 Level 2 CET1 ratio is 12.15%, inclusive of the intended share buy-backs.
NAB said it will “continue to assess various options to return capital to shareholders, consistent with managing capital towards the target CET1 range.”
In addition to the on-market buy-back NAB said intends to purchase shares on-market to satisfy Dividend Reinvestment Plan requirements over the buy-back period (which will chew up a bit more capital).
NAB shares closed at $25.77 on Thursday, up more than 14% in 2021 so far and up a massive 42% in the past year. NAB shares jumped 0.9% to $26 in early trading on Friday but then eased to around $25.83.
