Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

CBA Announces a BIG Off-Market Buyback - Timing and Past Cases

Westpac (WBC AU) Announces a BIG Off-Market Buyback

Quiddity Advisors

Event-Driven

<h3>The SHORT &amp; SWEET</h3><ul>
<li>Australian banks are seeing or are going to see sharp hikes in H1 dividends this year despite APRA guidance to be prudent with capital decisions. </li>
<li>APRA changed its guidance on 29 July. </li>
<li>ANZ had announced a decent-sized buyback earlier in July and NAB announced one on 30 July. </li>
<li>Others are expected to announce buy-backs in August.</li>
</ul><h3>The Longer Introduction</h3>In April 2020 when markets were crashing and there was tremendous uncertainty about what ravages covid might bring to every sector of the economy, <a href="https://www.smartkarma.com/entities/national-australia-bank-ltd" target="_blank" data-smartkarma-citation="entities:15:1" rel="noopener">National Australia Bank (NAB AU)</a> slashed its dividend and launched a A$3.5bn capital raise. Other companies did the same, but the other major banks avoided a capital raise in 2020 because they had either raised equity earlier (all four majors raised equity in 2015, but <a href="https://www.smartkarma.com/entities/westpac-banking-corp" target="_blank" data-smartkarma-citation="entities:444:1" rel="noopener">Westpac Banking (WBC AU)</a> also raised in Nov 2019) or they cut or eliminated an interim dividend (ANZ and CBA cut theirs, and Westpac eliminated their div for H1 2020 entirely).For NAB, the capital raise was an institutional share placement of A$3bn and a A$500mm Share Purchase Plan (SPP) targeting individual shareholders. The SPP was well-received, priced at A$14.15/share - the same price as the placement - so when books closed a month later and the market price was 10% higher, demand had been strong enough that the SPP was boosted by A$750mm to A$1.25bn. That was probably overly cautious at the time, but it was a huge gift to shareholders. A week after the SPP shares started trading on 2 June, the shares were changing hands above A$20/share. Fast forward almost a year later to the 6 May release of H1 earnings and the bank said it had too much capital with its Common Equity Tier 1 ratio at 12.37-12.40%. It noted it intended to take action to lower that but stay above APRA's Unquestionably Strong benchmark of 10.5%. This came despite APRA's <a href="https://www.apra.gov.au/news-and-publications/apra-issues-guidance-to-authorised-deposit-taking-institutions-and-insurers" target="_blank" rel="noopener">guidance</a> in early April of 2021 that it expected deposit-taking institutions it expected they (and other financial institutions) "limit discretionary capital distributions in the months ahead, including deferrals or prudent reductions in dividends." The 7 April <a href="https://www.apra.gov.au/sites/default/files/2020-04/Capital%20management.pdf" target="_blank" rel="noopener">letter</a> (pdf) on Capital Management said,<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/221/292/original/Screenshot+2021-07-31+at+3.03.52+PM.png?1627715057" class="editor-image img-responsive" data-smartkarma-image-id="221292"></figure></section>Interestingly, <a href="https://www.smartkarma.com/entities/australia-and-new-zealand-banking-group-anz" target="_blank" data-smartkarma-citation="entities:443:1" rel="noopener">Australia and New Zealand Banking Group (ANZ) (ANZ AU)</a> announced a A$1.5bn buyback - ~2% of market cap - on 19 July and the stock bounced $1/share to A$28/share over a few days. This was obviously discussed with APRA but ANZ CEO Shayne Elliott had said on 5 May when reporting a 126% increase in H1 profit helped by writebacks, and a jump in H1 div,  that the Australian economy was booming and said, “Australia is in really good shape in where we sit today," and he quite clearly laid out the case for a buyback then.<blockquote>
 “We have an embarrassment of riches, if you will, in terms of excess capital.”
“Clearly the only path to get to 10.8, putting aside almost unimaginable growth in our balance sheet, would be some sort of capital management activity,”
ANZ Bank CEO Shayne Elliott (5 May 2021)
</blockquote>ANZ was first off the block.On 29 July, APRA <a href="https://www.apra.gov.au/news-and-publications/apra-updates-guidance-on-capital-management-for-banks-and-insurers" target="_blank" rel="noopener">updated its guidance</a> and the <a href="https://www.apra.gov.au/sites/default/files/2020-07/Letter%20to%20authorised%20deposit-taking%20institutions%20-%20Capital%20management.pdf" target="_blank" rel="noopener">new letter</a> on capital management eliminates the strict requirement but maintains guidance on 50% dividend payout. <h3>New NAB News</h3>On Friday 30 July 2021, <a href="https://www.smartkarma.com/entities/national-australia-bank-ltd" target="_blank" data-smartkarma-citation="entities:15:1" rel="noopener">National Australia Bank (NAB AU)</a> filed an <a href="https://www.asx.com.au/asxpdf/20210730/pdf/44yt960pv5csx8.pdf" target="_blank" rel="noopener">announcement</a> with the ASX for an on-market buyback for A$2.5bn of its shares, which is about 3% of current market cap, as part of its effort to move its Common Equity Tier 1 ratio to 10.75-11.25%. Under Corporations Act 2001, a company has to announce an on-market buyback to ASIC 14 days before starting. The buyback is expected to start in mid-late August and go through a period as long as end July 2022. That ASIC <a href="https://www.asx.com.au/asxpdf/20210730/pdf/44ytb9zm9cfdpn.pdf" target="_blank" rel="noopener">lodgment</a> was made Friday too. Because it is an on-market buy back under the limits of the 10/12 rule (&gt;10% of shares to be bought back in &lt;12 months), no further details are required to be given out.<blockquote>
The timing and actual number of shares purchased under the buy-back will depend on market conditions, the prevailing share price and other considerations....
In addition to the on-market buy-back announced today, NAB intends to purchase shares on-market to satisfy Dividend Reinvestment Plan requirements over the buy-back period...
The exact nature, amount, and timing of any further capital returns beyond the $2.5 billion on-market buy-back announced today, will be dependent on market conditions and capital outlook.
</blockquote>Despite the still strict-sounding guidance from APRA, the organisation conducted stress tests and released results last December saying even in "severe downside scenario" where growth dropped 15% and unemployment rose 13% and house prices fell 30%, the major banks would all pass the minimum capital requirement with room to spare.The fact that these two banks have announced buybacks indicates APRA is comfortable with where banks stand, suggesting that the even more capitaltastic Westpac and CBA are likely to announce buybacks next month with earnings.

The SHORT &amp; SWEET
Australian banks are seeing or are going to see sharp hikes in H1 dividends this year despite APRA guidance to be prudent with capital decisions. 
APRA changed its guidance on 29 July. 
ANZ had announced a decent-sized buyback earlier in July and NAB announced one on 30 July. 
Others are expected to announce buy-backs in August.
The Longer IntroductionIn April 2020 when markets were crashing and there was tremendous uncertainty about what ravages covid might bring to every sector of the economy, National Australia Bank (NAB AU) slashed its dividend and launched a A$3.5bn capital raise. Other companies did the same, but the other major banks avoided a capital raise in 2020 because they had either raised equity earlier (all four majors raised equity in 2015, but Westpac Banking (WBC AU) also raised in Nov 2019) or they cut or eliminated an interim dividend (ANZ and CBA cut theirs, and Westpac eliminated their div for H1 2020 entirely).For NAB, the capital raise was an institutional share placement of A$3bn and a A$500mm Share Purchase Plan (SPP) targeting individual shareholders. The SPP was well-received, priced at A$14.15/share - the same price as the placement - so when books closed a month later and the market price was 10% higher, demand had been strong enough that the SPP was boosted by A$750mm to A$1.25bn. That was probably overly cautious at the time, but it was a huge gift to shareholders. A week after the SPP shares started trading on 2 June, the shares were changing hands above A$20/share. Fast forward almost a year later to the 6 May release of H1 earnings and the bank said it had too much capital with its Common Equity Tier 1 ratio at 12.37-12.40%. It noted it intended to take action to lower that but stay above APRA's Unquestionably Strong benchmark of 10.5%. This came despite APRA's guidance in early April of 2021 that it expected deposit-taking institutions it expected they (and other financial institutions) "limit discretionary capital distributions in the months ahead, including deferrals or prudent reductions in dividends." The 7 April letter (pdf) on Capital Management said,Interestingly, Australia and New Zealand Banking Group (ANZ) (ANZ AU) announced a A$1.5bn buyback - ~2% of market cap - on 19 July and the stock bounced $1/share to A$28/share over a few days. This was obviously discussed with APRA but ANZ CEO Shayne Elliott had said on 5 May when reporting a 126% increase in H1 profit helped by writebacks, and a jump in H1 div,  that the Australian economy was booming and said, “Australia is in really good shape in where we sit today," and he quite clearly laid out the case for a buyback then.
 “We have an embarrassment of riches, if you will, in terms of excess capital.”
“Clearly the only path to get to 10.8, putting aside almost unimaginable growth in our balance sheet, would be some sort of capital management activity,”
ANZ Bank CEO Shayne Elliott (5 May 2021)
ANZ was first off the block.On 29 July, APRA updated its guidance and the new letter on capital management eliminates the strict requirement but maintains guidance on 50% dividend payout. New NAB NewsOn Friday 30 July 2021, National Australia Bank (NAB AU) filed an announcement with the ASX for an on-market buyback for A$2.5bn of its shares, which is about 3% of current market cap, as part of its effort to move its Common Equity Tier 1 ratio to 10.75-11.25%. Under Corporations Act 2001, a company has to announce an on-market buyback to ASIC 14 days before starting. The buyback is expected to start in mid-late August and go through a period as long as end July 2022. That ASIC lodgment was made Friday too. Because it is an on-market buy back under the limits of the 10/12 rule (&gt;10% of shares to be bought back in &lt;12 months), no further details are required to be given out.
The timing and actual number of shares purchased under the buy-back will depend on market conditions, the prevailing share price and other considerations....
In addition to the on-market buy-back announced today, NAB intends to purchase shares on-market to satisfy Dividend Reinvestment Plan requirements over the buy-back period...
The exact nature, amount, and timing of any further capital returns beyond the $2.5 billion on-market buy-back announced today, will be dependent on market conditions and capital outlook.
Despite the still strict-sounding guidance from APRA, the organisation conducted stress tests and released results last December saying even in "severe downside scenario" where growth dropped 15% and unemployment rose 13% and house prices fell 30%, the major banks would all pass the minimum capital requirement with room to spare.The fact that these two banks have announced buybacks indicates APRA is comfortable with where banks stand, suggesting that the even more capitaltastic Westpac and CBA are likely to announce buybacks next month with earnings. 

Washington H. Soul Pattinson and Co. Ltd (SOL AU)

Aussie Bank Buyback Season Starts - Expect A$12-15bn and Funky Flows