Australia and New Zealand Banking Group Ltd’s [ASX:ANZ] shares rose by 2.3% this morning.
The rise is interesting — lately ANZ has been in the headlines for all the wrong reasons, with the royal commission looking deeply into misconduct within the financial industry.
That public scrutiny has been negative for all Australian banks, but especially the ‘big four’ — CBA, ANZ, NAB and Westpac. The result has been share price falls and increased volatility all year. ANZ is no exception.
However, an announcement today about a share buy-back could be the cause of this morning’s share price rise.
What does this mean for investors?
It was announced this morning that, following the sale of their life insurance business OnePath, ANZ has doubled its buy-back price from $1.5 billion to $2.5 billion. With the company now planning to buy nearly twice the value of shares back from the market, investors clearly see an opportunity to profit.
ANZ CFO Michelle Jablko believes the raised buy-back is a positive development for its shareholders.
It’s an interesting development, seeing as much of the other banks have seen their share price plateau at best.
The buy-back will also see ANZ’s common equity tier one (CET1 — the bank’s proxy for financial strength) ratio raise by 54 basis points on a pro-forma basis, from 11.04 to 11.60.
This is all very good news for many Aussie investors who hold ANZ shares, especially in light of the recent controversies revealed by the Royal Commission investigation into ANZ’s banking practices.
The latest issues causing volatility for the bank are allegations of cartel conduct. The allegations began back in 2015, when ANZ tried to raise $2.5 billion with the help of Citigroup, Deutsche Bank and JP Morgan to increase their capital reserves. Whilst the exact details of the outcome were unclear, this resulted in the banks colliding to keep the ANZ share price artificially high.
How ANZ will continue to perform for the rest of the year will depend on how much more bad behaviour comes to light — something extremely difficult for investors to predict.
The current volatility could be seen as an opportunity to buy one of Australia’s best-performing stocks at a discounted price. But remember that past performance is no guarantee of future returns.
If ANZ finds itself back in the spotlight for financial misconduct yet again, there’s no reason why it’s share price couldn’t fall again.
Alice de Bruin,
Markets & Money
PS: The fallout of the banks’ misconduct has so far been contained to the financial industry. But with finance making up such an unusually large portion of Australia’s economy, it could be a risk to us all. Financial expert Vern Gowdie explores why a credit collapse could occur in 2018, and how you can protect your assets. Click here for a free action plan.