Remediation drop-off presents dividend opportunity
Remediation drop-off presents dividend opportunity
Banks have paid more than $7 billion to customers in remediation since the Royal Commission but this ending will leave them with more available cash to distribute to shareholders.
[fm/original]
The drop-off in remediation costs from the Royal Commission means banks will have excess cash to return to shareholders, according to Plato’s Don Hamson.
Speaking at the Pinnacle investment conference, Hamson, managing director at Plato Investment Management, said remediation had been a drag on the four companies’ balance sheet as the Royal Commission had left them with large costs to pay to customers.
According to analysis of the big four banks’ 2020 results by KPMG, remediation had totalled $7.3 billion in repayments to customers and expenses since 2018, including $1.7 billion last year.
Hamson said: “We’ve seen that the Royal Commission is a thing of the past. The remediation costs that have been massive in the last few years are starting to roll off as well and banks are continuing to cost cut and pull costs out of their business.”
He also pointed out banks were holding above-average levels of capital ratio which led ANZ to announce a $1.5 billion buyback.
“We actually expect the other big four banks to follow, although it's quite likely that Commonwealth Bank and Westpac, which have excess franking credits, are likely to actually conduct off-market buybacks, which are very tax affective for retirees,” Hamson said.
“But even if we just look at the ordinary dividends that the banks are paying, the interim dividends that ANZ and Westpac paid this year actually exceeded the full year dividends that they paid last year.
“In NAB's case, it meant the same four-year dividend, and they may not be quite as large as the interims two years ago but they're heading back in the right direction. We're seeing substantial increases in the dividends and we think their final dividends will all increase as well, given the improved situation.”
Looking at the share price of the banks since the start of the year to 4 August, Westpac had performed best with an increase of 31% followed by ANZ and Commonwealth Bank which had both seen gains of 26%. NAB had seen the smallest gains over the period with an increase of 19%, according to data from FE Analytics.
AUTHOR
Laura Dew
Recommended for you
Investment solution provider Channel Capital has appointed James Archer as its latest distribution director, joining from Pinnacle Investment Management.
Bennelong Funds Management has signed a memorandum of understanding with US private credit manager Monroe Capital to distribute its products in Australia.
Global equity manager Talaria Capital has appointed a Sydney-based sales director as it grows its distribution presence across Australia.
Global private markets firm Partners Group has launched an evergreen fund to provide Australian advisers with access to its cross-sector royalties strategy.
