The Tribune

BY NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

COMMONWEALTH Bank says it has no plans to act as “a market maker” for its stock through a recently-unveiled five-year share buy-back initiative upon which it expects to spend between $9m-$10m annually.

Tangela Albury, the BISX-listed lender’s chief financial officer, in e-mailed responses to Tribune Business questions said it had set ceilings and timelines to make the programme “measured, transparent and manageable” although it is not seeking to “defend or artificially influence” a share price that closed yesterday at $4.06 - just above its $4 52-week low on the Bahamas International Securities Exchange (BISX).

Commonwealth Bank has stipulated that share repurchases will be confined to a seven-month window between May 1 and November 30 annually, with no more than two million to be acquired in any given year. This means that, over the five years, no more than ten million total shares can be repurchased with Ms Albury also revealing that “mopping up every share for sale” to protect the stock price is not a key objective - unlike with other buy backs initiated by BISX-listed companies.

The relative illiquidity of the BISX main board market, which keeps trading volumes and frequency relatively low given the small number of investors, has often prompted listed companies to initiate repurchases to buy-out small individual, or retail, shareholders. This is designed to prevent them from accepting low prices that cause the stock’s value to plummet below fundamentals in their desperation to exit.

Ms Albury, though, told this newspaper that defending a specific share price is not Commonwealth Bank’s primary aim. “Certainly, the programme may contribute positively to trading liquidity on BISX by creating an additional potential buyer during the authorised period. That can be particularly helpful in a market like BISX that suffers from low trading volumes,” she acknowledged.

“However, the bank is not undertaking the programme to establish, defend or artificially influence a particular market price, and it will not act as a market maker in its own shares. Purchases will be determined by valuation, capital availability, regulatory requirements and market conditions, not by an objective of mopping up every share offered for sale.

“The programme also cannot guarantee that every shareholder wishing to sell will find a buyer, or that the share price will increase. BISX trading will continue to determine the price based on available supply and demand.”

Reiterating that the annual and five-year share purchase limits represent a ceiling, rather than a target, Ms Albury said: “The programme authorises the repurchase of up to two million shares annually, and up to ten million shares over five years. Those figures are ceilings and should not be interpreted as forecasts or commitments.

“While the dollar amount cannot be determined in advance because it will depend on the number of shares available, the prices at which they are offered, we expect - in the near term - the expenditure to be between $9m-$10m annually. However, actual expenditure could be materially lower because the bank will not be required to use the full annual or aggregate authority.”

Speaking to the self-imposed limits on Commonwealth Bank’s share buy back, Ms Albury said: “The parameters were deliberately designed to make the programme measured, transparent and manageable.

“The annual ceiling of two million shares represents less than 1 percent of the bank’s current issued shares and allows the bank to participate prudently without having a disproportionate influence on market activity or the bank’s cash flows. The five-year ceiling of ten million shares similarly limits the programme to approximately 3.4 percent of the Bank’s presently issued shares.”

She added: “It is important to state that these are maximum authorisations, not purchase commitments. The bank may acquire fewer shares, or none at all, depending on valuation, market availability, capital requirements, liquidity and prevailing economic conditions.

“The May 1 to November 30 window establishes a defined and transparent annual execution period. It also facilitates appropriate financial, regulatory and governance reviews before purchases commence and ahead of the bank’s year-end financial reporting process.”

Describing the share buy-back as part of Commonwealth Bank’s “capital management strategy”, Ms Albury said it is designed to deliver “several potential benefits”. She added: “Firstly, the programme gives shareholders who wish to sell an additional potential source of demand, while allowing continuing shareholders to retain a proportionately larger interest in the bank following the retirement of repurchased shares.

“Secondly, where the bank’s shares can be acquired at a price the Board considers attractive relative to their underlying value, repurchasing shares can represent an efficient use of capital. We anticipate minimal, but mildly positive, impacts on per-share measures such as earnings per share (EPS) and book value per share. However, ultimately, financial results of the bank’s operations will be the primary driver.”

Reiterating that the share buy-back reflects Commonwealth Bank’s confidence in its current and future financial performance, the chief financial officer said: “As part of normal business, the bank has several competing uses for capital for operational management, shareholder value enhancement, as well as strategic planning.

“The buyback will not automatically take priority over those uses. Before executing purchases, management will assess the bank’s capital position, liquidity, forecast earnings, credit outlook, investment requirements and the valuation of the shares.

“Because it is not a short-term reaction to movements in the bank’s share price or trading activity, management will monitor those considerations throughout each purchase window with formal reporting to the Board. The overall programme and authorisation should be reviewed by the Board at least annually, with the ability to pause, reduce or discontinue purchases whenever circumstances warrant.”