Why is the NAB share price higher today?
Shares in the top 4 banks have risen more than 40% in the last 12 months.
Shares in National Australia Bank (ASX: NAB) were among the most traded among the Big Four banks. The stock rose nearly 1% in early trading, and at the time of writing was still up 0.5% at $25.89 despite a decline in the overall market.
What is lifting the NAB stock price?
Sentiment in the NAB stock has lifted after it announced a hefty on-market share buyback worth up to $2.5 billion. The buyback is equivalent to about 2.9% of NAB’s market capitalisation.
NAB chief executive Ross McEwan said the move would help the lender progress its Common Equity Tier 1 (CET1) capital ratio back to the target range of 10.75-11.25%, a level that would reflect a balance between maintaining a strong balance sheet and ensuring capital discipline to improve shareholder returns.
“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 return on equity benefits,” he said in a statement to the stock exchange.
As of 31 March, NAB had a CET1 capital ratio of 12.37% at Level 2 and 12.40% at Level 1.
The buyback, which will commence in mid to late August, also underscores the strong performance by NAB and other big banks over the last financial year. NAB reported a half year statutory net profit of $3.2 billion in May, more than double the $1.3 billion it recorded during the same period last year.
From an investor perspective, NAB’s announcement, which follows a similar one by rival ANZ (ASX: ANZ) earlier this month, could be a precursor to a wave of capital returns in coming months.
The major banks have built up large capital buffers as they held on to proceeds from asset sales during the pandemic uncertainty last year to keep capital levels well above the banking regulator’s unquestionably strong threshold.
Analysts at Morgan Stanley recently estimated that capital worth as much as $15 billion could be returned across the sector.
In NAB’s case, after accounting for the current buyback and the sale of its MLC Wealth division, the bank’s Level 2 CET1 ratio will drop to 12.15%, which is still well above the target range.
That could likely mean another multi-billion dollar share buyback later this year. It could help NAB shares maintain their upward momentum, despite already surging over 40% over the last 12 months.
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