ANZ shares fall after Morgan Stanley points to lower dividend
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Morgan Stanley says ANZ shares will continue to underperform without big changes.
by James Eyers
ANZ Banking Group shares fell heavily on Wednesday after Morgan Stanley said the bank will cut its dividend per share this year in the face of rising loan losses in Asia and lower-than-expected income from its global markets business.
Morgan Stanley analyst Richard Wiles reckons ANZ will pay dividends of $1.55 a share for the full year, compared with $1.81 last year, a reduction of 14 per cent.
He also expects ANZ to lower its dividend payout ratio from the current range of 65 per cent to 70 per cent of earnings to a new range of 60 per cent to 65 per cent, reflecting that return on equity has been reduced by higher levels of capital.
ANZ shares fell 4.4 per cent on Wednesday to $23.50. The stock is down 16 per cent since the start of January. It has underperformed the other major banks by an average of 10 per cent in 2015 and 40 per cent over the last five years.
In a research note, Mr Wiles said ANZ shares will continue to perform poorly compared to the other big banks unless new chief executive Shayne Elliott announces major changes including writing down the value of investments in Asian banks, raising more capital, and lifting provisions to recognise credit exposures to Asia and commodities.
Other investment risks for ANZ include a subdued revenue outlook for institutional banking and uncertainty about the Asian strategy. Mr Elliott should consider selling the Asian retail franchise, and selling or writing down ANZ's minority stakes in various Asian banks, Mr Wiles said. He also suggested ANZ consider a capital raising to lift its common equity tier 1 capital ratio to 10 per cent.
The cut in the dividend per share is needed to prevent the dividend payout ratio rising to 75 per cent this year and 78 per cent in 2017, Mr Wiles argued, the result of lower earnings per share forecasts. These were partly based on lower income from its global markets business as economic growth slows and ANZ's risk appetite is reduced as the bank works through recent
allegations about poor culture on its trading floor revealed by
The Australian Financial Review.
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