All signs point to 'big four' buybacks, as banks sit on billions
The major banks have too much capital and not enough to do with it. They already started buying back shares, and in 2024 the market is expecting more.
Australia's big four banks have a problem many companies in other sectors or jurisdiction couldn't fathom. They have too much capital. And nothing to do with it.
That's especially true for ANZ which raised nearly $5 billion to fund its bid for Suncorp Group’s bank. But Morgan Stanley reckons the big banks have between $3.5 and $7 billion of excess capital which could be used to fund share buybacks over the next two years, depending on economic conditions.
Banks don’t like to have excess capital. They always argue for less than regulators want them to hold because they are judged on their returns on capital; to perform they need to either lift returns or lower their equity - which they can do by buying back shares.
Heading into a tough year for revenue and costs, with margin pressure still apparent, the potential for buybacks to sustain ROE is one rainbow on a gloomy horizon for investors in bank stocks. Moreover, a key theme of the last bank reporting period in September was more buyback announcements - a tacit acknowledgement management couldn't find anything more productive to do with the capital.
