MARKETS SPECTATOR: ANZ share snub

After initially rising, ANZ Bank's stock price reversed in the wake of the bank's rare and oddly timed buyback announcement.

For the first time in nine years and for the first time during the tenure of chief executive Mike Smith, ANZ says it will by buy back shares; $425 million worth of them, but not before June 13.

The amount of stock to be purchased by the Melbourne-based bank is a tiny amount compared to ANZ’s $76.47 billion market capitalisation. Some analysts suspect a degree of peer pressure has affected ANZ after rivals Commonwealth Bank and Westpac announced similar buyback plans. The timing of the ANZ buyback seems odd, according to some analysts, with such buybacks usually announced when earnings are disclosed. The bank reported its half-year earnings on April 29.

Still, sub-trend revenue growth is in evidence for all the Australian banks and the ANZ buyback may go a little way to cope with the dilutive effect of its dividend reinvestment plan.

Perhaps the buyback is a signal the bank does not have a lot of areas to deploy capital back into the business. It doesn’t plan to make acquisitions and the bank seems to be taking a breather in its expansion into Asia.

ANZ’s last buyback was 2004 when it bought $350 million worth of shares, according to a spokesman at the bank. The spokesman said ANZ had not yet appointed a broker to manage its latest buyback.

The bank’s share price today initially reacted favourably to the announcement. It rose as much as 1.4 per cent to $28.47. But the stock has since slid. At 1129 AEST ANZ shares were down 16 cents, or 0.6 per cent, to $27.92, in contrast to the benchmark S&P/ASX200 Index which was flat at 4970.90.  

ANZ shares have gained 36 per cent in the last 12 months and 12 per cent since the start of the year, according to Bloomberg data. But the stock has dropped 12 per cent since April 30. The stock hit a 52-week high of $32.09 on May 1.

Meanwhile, Credit Suisse analyst James Ellis rates ANZ shares 'neutral' but it is his top pick among the four largest Australian banks. Ellis is “cautious” on banking stocks at present.