After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.

When you live in a country dominated by just four banks and 2 and 1/8th supermarkets, you will always see complacency. This week, ANZ showed just how a zombie bank does it.

Where I live, the only Big Four bank branch left is an NAB and the nearest ANZ branch is a 36 minute drive away.

This is not so good for customers but great for shareholders, as less branches means less overheads and more dividends.

If you are both a shareholder and a customer, then I would say your loyalty would be getting stretched. If I explain something else to you, I think it could snap.

ANZ has just announced a fund raise, so they can buy another asset from another bank. Not from a big rival, from a lower class of bank.

I can’t recall any of the Big 4 ever shuffling assets around, as the egos would get in the way, so it is always an underling that provides lunch.

Now, this particular asset purchase will most likely take a few years to fall apart. So the purchase itself is probably not enough to snap your loyalty band.

No. It’s ANZ’s little bit of financial engineering which will leave you opened-mouthed and in silence.

You see, they have just raised $1.7bn from institutional investors by issuing 89m new shares at $21.65 a pop.

Go back to before all of the headlines and chest-beating about their new asset purchase this week. It was only in March of this year that ANZ completed a $1.5bn share buy back at an average price of, wait for it…

$27.77 a share.

So, between 19th July 2021 and 24th March 2022, UBS had stood in the market for them and purchased 54m shares.

The highest price they paid was $29.54 (13/8/2021) and the lowest price was $24.65 (7/3/2022).

These shares are then cancelled, so the amount of shares on issue goes down and in theory, the company’s valuation goes up as there are less shares on issue.

Now, by using my very special broker valuation tool, which consists of a pen and the back of a drink coaster, I can see that the difference between $27.77 and $21.65 is $6.12.

Times that by the 54m cancelled shares and it comes to $330.48m.

This means that the very same institutions that sold those 54m shares on market to ANZ at an average price of $27.77, just got them back at $21.65 and pocketed $330m for their effort.

Hey presto.
 

Giant bankers

2021 – ‘Let’s just close down more branches to create shareholder wealth and use the money saved to buy back our own shares.’

2022 – ‘Now, how about we issue those shares back into the market at a lower price because we have finally found an asset to buy.’

To throw more salt into a stockholder’s wound, the total raising was underwritten, so yet more fees go out the door.

Why a major bank would need to have an issue of shares underwritten is beyond me.

The last collapse in banking confidence provided us all with the notion that they are all fully underwritten by the Australian government.

Dad’s Army would have done a better bit of financial engineering than this lot.

I can just see all the underwriters at their very long celebratory lunch, raising a toast to ‘our very own Dad’s Army’ before needing to Google ‘nearest ANZ branch’ to find out where to pick up their fat fee cheques.

In fact, Captain Mainwaring actually was a bank manager in the show and Wilson was his deputy.

How appropriate…

 

The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at [email protected]

Feel free to contact him with your best stock tips and ideas.