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

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

Commonwealth Bank of Australia – Pulling On All Earnings Levers

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

Quiddity Advisors

Event-Driven

Commonwealth Bank of Australia / Event-Driven

<p style="text-align: left;">In <a href="https://www.smartkarma.com/insights/aussie-bank-buyback-season-starts-expect-a-12-15bn-and-funky-flows" target="_blank" data-smartkarma-citation="insights:55301" rel="noopener">Aussie Bank Buyback Season Starts - Expect A$12-15bn and Funky Flows</a> 10 days ago I wrote that I expected <a href="https://www.smartkarma.com/entities/commonwealth-bank-of-australia" target="_blank" data-smartkarma-citation="entities:14:1" rel="noopener">Commonwealth Bank of Australia (CBA AU)</a> to announce an off-market buyback A$5.0-6.0bn when it announced earnings on 11 August.</p><div class="content-highlight">
<p><strong>11 Aug 2021: CBA releases earnings</strong></p>
<ul>
<li>In its Q3 update <a href="https://www.asx.com.au/asxpdf/20210512/pdf/44wdznw579z8cv.pdf" target="_blank" rel="noopener">released</a> on 12 May, <a href="https://www.smartkarma.com/entities/commonwealth-bank-of-australia" target="_blank" data-smartkarma-citation="entities:14:1" rel="noopener">Commonwealth Bank of Australia (CBA AU)</a> announced a CET1 ratio of 12.7%.</li>
<li>In April CBA issued PERL capital notes to the tune of A$1.18bn which raised Tier1 by 26bp, and sold its Comminsure business which will also raise it slightly in CY21H2. It sold its wealth management business earlier. Given earnings are expected to be robust and more writebacks from provisions made last year could be in the offing, what was an excess capital position of A$10-11.5bn at end-March could be on the order of A$12.0-13.5bn at end-June.</li>
<li>Given the change in CBA's profile from multi-strat bank to more of a deposit-taking institution, and the notion it could get the second part (A$500mm) of the $1bn capital penalty APRA applied in 2019 (following a review of its governance, culture and accountability) following remediation, there is likely to be more flexibility to lower the CET1 ratio.</li>
<li>The 12 May statement said <em>"A strong surplus capital position creates flexibility for the board in its consideration of capital management initiatives. The timing and extent of any such initiatives is dependent upon a continued trend of domestic economic improvement, our ongoing assessment of portfolio credit quality, and regulatory guidance."</em>
</li>
<li><strong>CBA should be expected to be able to raise its dividend AND buy back shares. I would expect a buyback of A$5.0-6.0bn or about half the distance between its end-June CET1 and the "Unquestionably Strong" level.</strong></li>
<li><em><strong>Given CBA's franking credit position, and its history of having conducted off-market buybacks in the past, one should expect CBA's buyback to be an off-market buyback. </strong></em></li>
</ul>
</div><h3></h3><h2>Today's News</h2><p>This morning, Commonwealth Bank of Australia released its FY2021 Full Year Earnings (<a href="https://www.commbank.com.au/content/dam/commbank-assets/investors/docs/results/fy21/cba-fy21-profit-announcement.pdf" target="_blank" rel="noopener">statement</a>, <a href="https://www.commbank.com.au/content/dam/commbank-assets/investors/docs/results/fy21/cba-fy21-results-presentation.pdf" target="_blank" rel="noopener">presentation</a>, <a href="https://www.commbank.com.au/content/dam/commbank-assets/investors/docs/results/fy21/cba-fy21-basel-iii-pillar-3-disclosure.pdf" target="_blank" rel="noopener">capital adequacy</a>, and there is, of course, a <a href="https://edge.media-server.com/mmc/p/jwtuzfqm" target="_blank" rel="noopener">webcast</a>, which goes along with the <a href="https://www.commbank.com.au/about-us/investors/asx-announcements.html" target="_blank" rel="noopener">Annual Report</a>, <a href="https://www.commbank.com.au/about-us/investors/asx-announcements.html" target="_blank" rel="noopener">Corporate Governance Statement</a>, and an update on the <a href="https://www.commbank.com.au/about-us/investors/asx-announcements.html" target="_blank" rel="noopener">Prudential Inquiry Remedial Action Plan</a>).  </p><p>As expected, results were good. Statutory NPAT up 19.7%yoy, mostly due to lower loan impairments. Operating profit was up 1.7%. NIM was down slightly to 2.03% due to higher quality assets and CET1 capital came in at 13.1%.</p><p><em><strong>And as expected, the final dividend was hiked - A$2.00/share for Record Date 18 August - and a <a href="https://www.commbank.com.au/about-us/investors/asx-announcements.html" target="_blank" rel="noopener">large off-market buyback was announced</a>. </strong></em></p><h3>A$6.0bn. </h3><p style="text-align: left;">Also with a Record Date of 18 August. </p><p style="text-align: left;"></p><p style="text-align: left;"><em>This insight talks about how the flows, and the possibilities. It is a follow-on from <a href="https://www.smartkarma.com/insights/aussie-bank-buyback-season-starts-expect-a-12-15bn-and-funky-flows" target="_blank" data-smartkarma-citation="insights:55301" rel="noopener">Aussie Bank Buyback Season Starts - Expect A$12-15bn and Funky Flows</a>. One should expect <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> to announce an off-market buyback when it reports on 19 August. There are two bits of more recent news which impact this. I had expected A$3.0bn or more. I might expect A$4.0bn but there is a wee cloud there.</em></p>

In Aussie Bank Buyback Season Starts - Expect A$12-15bn and Funky Flows 10 days ago I wrote that I expected Commonwealth Bank of Australia (CBA AU) to announce an off-market buyback A$5.0-6.0bn when it announced earnings on 11 August.
11 Aug 2021: CBA releases earnings

In its Q3 update released on 12 May, Commonwealth Bank of Australia (CBA AU) announced a CET1 ratio of 12.7%.
In April CBA issued PERL capital notes to the tune of A$1.18bn which raised Tier1 by 26bp, and sold its Comminsure business which will also raise it slightly in CY21H2. It sold its wealth management business earlier. Given earnings are expected to be robust and more writebacks from provisions made last year could be in the offing, what was an excess capital position of A$10-11.5bn at end-March could be on the order of A$12.0-13.5bn at end-June.
Given the change in CBA's profile from multi-strat bank to more of a deposit-taking institution, and the notion it could get the second part (A$500mm) of the $1bn capital penalty APRA applied in 2019 (following a review of its governance, culture and accountability) following remediation, there is likely to be more flexibility to lower the CET1 ratio.
The 12 May statement said "A strong surplus capital position creates flexibility for the board in its consideration of capital management initiatives. The timing and extent of any such initiatives is dependent upon a continued trend of domestic economic improvement, our ongoing assessment of portfolio credit quality, and regulatory guidance."

CBA should be expected to be able to raise its dividend AND buy back shares. I would expect a buyback of A$5.0-6.0bn or about half the distance between its end-June CET1 and the "Unquestionably Strong" level.
Given CBA's franking credit position, and its history of having conducted off-market buybacks in the past, one should expect CBA's buyback to be an off-market buyback. 

Today's NewsThis morning, Commonwealth Bank of Australia released its FY2021 Full Year Earnings (statement, presentation, capital adequacy, and there is, of course, a webcast, which goes along with the Annual Report, Corporate Governance Statement, and an update on the Prudential Inquiry Remedial Action Plan).  As expected, results were good. Statutory NPAT up 19.7%yoy, mostly due to lower loan impairments. Operating profit was up 1.7%. NIM was down slightly to 2.03% due to higher quality assets and CET1 capital came in at 13.1%.And as expected, the final dividend was hiked - A$2.00/share for Record Date 18 August - and a large off-market buyback was announced. A$6.0bn. Also with a Record Date of 18 August. This insight talks about how the flows, and the possibilities. It is a follow-on from Aussie Bank Buyback Season Starts - Expect A$12-15bn and Funky Flows. One should expect Westpac Banking (WBC AU) to announce an off-market buyback when it reports on 19 August. There are two bits of more recent news which impact this. I had expected A$3.0bn or more. I might expect A$4.0bn but there is a wee cloud there.

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