The exercise looked a lot like a clearing of the decks - a catch up in remediation charges, a change to the accounting treatment of capitalisation of software, plus a 37 per cent writedown on the value carrying of its 20 per cent investment in MLC Life. Bank boards, a particularly risk averse lot these days, would be extremely aware of their obligations to take a prudent view on capital in these uncertain times. ANZ Bank declared the interim dividend of $0.25 per share in August (paid on 30 September) after its deferral in April, this year.
However, there will be some community pressure on banks to deliver at least some nominal dividend reward to the millions of small retail shareholders who rely on these payments for a living. In that respect a suspension of dividend payments has already been baked in by the market. Consensus is growing that the three major banks set to announce their half year results over the coming weeks won’t be paying any dividends. Having said that the ANZ, Westpac and NAB share prices fell by almost exactly the amount of their anticipated interim dividends on the day APRA issued its directive. He, like other bank directors, has other options which need to be weighed. Aug 19 (Reuters) - Australia and New Zealand Banking Group Ltd ANZ.AX said on Wednesday it would pay an interim dividend to its shareholders, following a build-up …
And according to APRA, the bank boards should defer decisions until the outlook is clearer.
Australia and New Zealand Banking Group pays an annual dividend of A$0.50 per share, with a dividend yield of ∞. Australia and New Zealand Banking Group pays out 34.34% of its earnings out as a dividend. The National Australia Bank came out of the blocks on Monday announcing a $1.1 billion hit to its half year earnings to March 2020. This alone will gouge a $1.03 billion hole in its earnings. Westpac indicated that over the next couple of weeks, but before it releases its interim results, it would update the market on the COVID-19 impacts to impairments and earnings. Meanwhile in the lead up to three of the four big banks announcing their interim results, confession season is in full swing. Banks could choose to conserve capital by granting a smaller dividend using a dividend reinvestment plan (DRP). Well, if we assume ANZ is able to pay two 25 cents per share dividends in 2021, it would indicate a forward dividend yield of 2.56% (or 3.66% grossed-up if fully franked).
Not only is it ugly but it could easily be interpreted as warming up investors for a complete suspension or deferral of dividends. Last week Westpac dealt with one of the biggest questions in the banking industry - the estimated cost of its AUSTRAC debacle. In other words, they will need to justify any dividends they declare.
ANZ is better positioned than NAB and Westpac to make a dividend payment, provided it gets the green light from APRA.
But just how reliable these assessments will be is debatable, given that the duration of the economic, financial and health crisis remains unknown. ANZ's most recent interim dividend payment was made to shareholders of record on Wednesday, September 30. For the next six months many small business and retail borrowers are in payment hibernation so their ability to begin paying interest and principal is highly unclear.
Right now risk assessment teams at ANZ, Westpac and the NAB are furiously attempting to work through their loan books to ascertain the level of impairments. For ANZ investors, it's all about dividends. When the financial regulator, the Australian Prudential Regulation Authority, issued its guidance on dividends earlier this month it effectively said to the banks that they should defer dividends unless they could provide a solid case for paying them. Jefferies banking analysts, Brian Johnson, is predicting shareholders won't see dividends in 2020.
ANZ reports next week and is considered less likely to deliver an update before then but its chairman David Gonski emphasised this week (during an interview on the banks website) that the board would be acting in the long term interests of shareholders who in ‘the short term may have to bear the costs’. Risk or reward: Can banks justify paying dividends.
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