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ANZ shares drop 3% even as FY19 results reveal $2.3bn in dividends

ANZ reported lower profits, a lower return on equity; but announced that A$2.3 billion in dividends would be returned to shareholders.

The dividend in focus

That was a close call, kind of.

The main worry heading into today’s full year results was squarely on ANZ’s all-important dividend – and whether or not it would be cut.

In one way, nothing changed. ANZ today announced that it would pay a Final Dividend of 80 cents per share, a feat the blue-chip bank has maintained since May 2016.

'This equates to $2.3 billion to be paid to shareholders against ANZ's market capitalisation of $78 billion,’ the bank was keen to point out.

Yet what has changed today is the announcement that this dividend will be franked at a rate of 70%. In the past, ANZ has typically maintained a 100% franking rate on its dividends.

The reason for this according to ANZ?

The bank centrally believes that such a dividend level and rate is 'now appropriate given the changes to our business model, including the divestments of Wealth Business in Australia, as well as the changing operating environment.'

Though probably not the only catalyst, but the ANZ share price fell as much as 3.4%, to A$26.70 per share in the first couple of hours of trade, as investors likely baulked at the franking rate change and weaker profits.

ANZ share price: the front-line figures

All up and for the 2019 full year (ending September 30), ANZ revealed Statutory Profits after tax of A$5.95bn – a 7% drop on a YoY basis. From continuing operations, ANZ’s cash profits were ‘flat’, hitting A$6.47bn.

The bank’s return on equity (ROE) fell in FY19, hitting 10.9%.

By comparison to these figures, ANZ’s gross loans and advances grew 2% during the year, rising from A$608.4m in FY18 to A$618.8m in FY19.

Speaking broadly of the bank's outlook, Shayne Elliott, ANZ's current Chief Executive Officer noted that:

'We expect the operational improvements made to our Australian home loans business to help restore market share in our targeted segments. Record low interest rates and intense competition will continue to impact our profitability.'

The capital question

On the front of capital requirements, the bank maintained its ‘unquestionably strong’ CET1 ratio of 11.4% during FY19.

As we previously predicted, ANZ also commented on the current situation unfolding with the Reserve Bank of New Zealand RBNZ.

Here, ANZ noted that the changes under consideration depend on numerous factors and that the outcome ultimately remains uncertain. Elaborating on the particulars, the bank noted that ‘the amount of capital required, the time allowed to achieve it, and the instruments permitted to be used,' are still to be decided by the RBNZ.

On the decision front, it was also pointed out that:

‘The Board can consider further capital management actions once any regulatory changes are known in the coming months.’

For reference, a number of investment banks believe the RBNZ will decide on a CET1 ratio minimum of 14.5%. Though Macquarie didn’t specify particular NZ CET1 levels, the investment bank recently commented that it expects ANZ to face a A$4bn capital short-fall in response to the potential changes in capital requirements from the RBNZ and regulatory guidance from APRA.

From a forward facing perspective, Mr Elliot, elaborating on the points above, said:

'Capital efficiency will remain a focus, particularly as we manage the proposed changes impacting our business in New Zealand. While these changes are not final, we are starting from a strong capital position with solid organic generation capability.'

The ANZ outlook

Broadly speaking of the outlook, ANZ’s CEO said:

'We have prepared well and our strong sense of purpose has us positioned to thrive in what will continued to be a tough period.'

Today's share price action was indeed tough and how the stock will trend in the short to mid-term remains anyone's guess.

At the time of writing, ANZ shares traded hands at A$26.70.

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