NAB’s share price slides, but are gains set to come?

Posted: 24 March 2022 12:46 pm
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Shares in the Big Four bank have risen more than 17% in the last 6 months.

Shares in National Australia Bank (ASX: NAB) are among the most traded shares on the ASX on Thursday, down 0.3% to $31.62 at the time of writing. But the stock has been steadily rising to post healthy gains over the last 6 months and hit a fresh 52-week high in the previous session.

Banks fall but NAB views its shares as cheap

The Big Four Banks have been under pressure on Thursday, taking the cue from losses on the financial sector on Wall Street overnight, with the US Federal Reserve indicating it was considering a 0.5% hike in interest rates in May. During trading on Thursday, Commonwealth Bank (ASX: CBA), ANZ (ASX: ANZ) and Westpac (ASX: WBC) were all trading between 0.5% and 1% lower.

But NAB was the least affected among its peers as the bank announced another on-market share buyback of up to $2.5 billion, signalling to the market that its current share price could be cheap. It has just completed a $2.5 billion buyback that was announced in July 2021.

The bank said the new buyback will allow it to continue managing its CET1 capital ratio towards its target range of 10.75% – 11.25% over time. ​​The new buyback will reduce the CET1 ratio by 58 basis points to 11.3% as of 31 December, still well above the regulator's unquestionably strong benchmark of 10.50%.

"Our capital management strategy reflects the importance of maintaining a strong balance sheet through the cycle while allowing us to continue to support growth and deliver improved shareholder returns," NAB Group Chief Executive Officer Ross McEwan said in a statement.

"The further $2.5 billion on-market buyback announced today supports our ambition to reduce share count and increase sustainable ROE benefits for our shareholders."

The new buyback will start after NAB's half-year results announcement on 5 May and run for 12 months.

More buybacks?

NAB's announcement could be a precursor for another wave of capital returns by the major banks in coming months, despite announcing more than $12 billion in share buybacks over the last 6 months.

The major banks still have large capital buffers built up from asset sales over the last 2 years as they kept capital levels well above the banking regulator's unquestionably strong threshold during the pandemic uncertainty.

Analysts at Morgan Stanley are estimating that capital worth as much as $5 billion could again be returned across the sector.

Ahead of today's announcement, the broker had said in a recent note that ANZ has the capacity to buy back $1 billion worth of its shares, while NAB could purchase $2 billion.

It believes CBA could also launch another up to $2 billion share buyback following its recent stake sale of 10% in Bank of Hangzhou. CBA has recently completed a massive $6 billion share buyback.

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