The National Australia Bank Ltd (ASX: NAB) share pricing is rising after it announced a share buy-back plan.
NAB buy back
NAB said that it intends to buy back up to $2.5 billion of shares. On top of this, it will also buy back additional shares that would normally be created by the dividend reinvestment plan.
Management said that the timing and actual number of shares purchased under the buy-back will depend on market conditions, the share price and other considerations.
NAB said that it plans to start the buy back in mid to late August 2021.
Extra capital to be used
The buy-back will reduce its common equity tier (CET1 – meaning how much capital the company has) and bring it towards the capital ratio target range of 10.75% to 11.25%.
NAB said that it is well above APRA’s “unquestionably strong” benchmark of 10.5%. NAB’s Level 2 CET1 capital ratio was 12.37% on 31 March 2021.
The $2.5 million buy-back will reduce its CET1 capital ratio at Level 2 by around 0.60%.
NAB said that the sale of MLC Wealth to IOOF Holdings Limited (ASX: IFL) contributed to the capital.
The company is expecting a Level 2 CET1 ratio of 12.15% when including the buy-back in NAB’s approximated March 2021 CET1 numbers.
Management comments
NAB Group Chief Executive Officer Ross McEwan said: “Our support for customers and colleagues continues through ongoing lockdowns and as the COVID-19 situation evolves. At the same time, NAB’s strong financial performance, combined with the divestment of MLC Wealth, has created an opportunity for NAB to reduce our surplus capital while retaining a strong balance sheet during these uncertain times.
“We consider the on-market buy-back to be the most appropriate mechanism to achieve our previously stated bias towards reducing share count, which will help drive sustainable ROE benefits.”
NAB considering future capital actions
NAB said it will continue to assess options to return capital to shareholders, consistent with managing the capital towards the target CET1 range.
The company said that the completion of APRA’s regulatory capital framework over 2021 and 2022 will provide NAB with clarity to look at more capital management initiatives.
NAB did note that this is alongside assessing the continued medium-term economic impacts of COVID-19. It added that the details of any further capital returns will be dependent on market conditions and its capital outlook.
Summary thoughts on NAB and the share price
The NAB share price hasn’t moved much (yet) on the back of this news, however it will eventually strengthen the value of each share as the buy-back starts to take place. The market has probably been expecting this buy-back for a while.
If I were a shareholder I would be pleased with this news, but it isn’t enough to make me a buyer of NAB.
I love ASX dividend shares and there are plenty of others I would consider before NAB. My first port of call in the hunt for dividend share ideas would be here.
