'Release the capital!': Banks can resume dividend hikes, buybacks - BNN | Canada News Media
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'Release the capital!': Banks can resume dividend hikes, buybacks – BNN

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The Office of the Superintendent of Financial Institutions has lifted its pandemic-era prohibition on the shareholder-friendly moves that bank investors have come to crave.

In a speech Thursday afternoon, Peter Routledge, the superintendent of financial institutions, said that effective immediately, federally regulated lenders will be allowed to hike regular dividends and executive compensation. Share buybacks will be allowed, subject to the superintendent’s approval.

“As we update our expectations on capital distributions, we continue to expect that management and boards of directors will act responsibly, and employ robust risk management practices and sensitivity analysis that uses conservative and prudent assumptions to guide decisions pertaining to capital distributions,” Routledge said in a release.

The decision by Canada’s banking regulator comes more than a year and a half after the country’s federally regulated banks were told to stop raising their dividends and buying back shares. OSFI announced that expectation of lenders under its purview in March 2020, as it aimed to ensure the financial system could withstand the ravages of COVID-19.

However, not only did the banks withstand the pandemic, they thrived as the feared wave of loan defaults never materialized.

As a result, they’ve seen their capital climb well above required levels – which has spurred anticipation for the day when they’d be able to share the wealth with investors.

In a report to clients after OSFI unshackled the banks on Thursday, Barclays Capital Analyst John Aiken said that among the Big Six, Bank of Montreal and National Bank of Canada are best positioned for big dividend hikes in the near term, while Laurentian Bank stands out among the regional lenders.

“With a considerable level of excess capital, we expect the Canadian large cap banks could go beyond their usual conservative stance, and reward investors with a more aggressive bias for dividend hikes and share buybacks,” he wrote in a note titled At Long Last, OSFI Announces…Release the Capital!

Aiken pointed out that dividend hikes don’t chew into accumulated capital levels, and estimates that the Big Six will still be sitting on $48 billion in excess capital after they raise their dividends — which opens the door for share buybacks, M&A, or what the industry calls “inorganic” growth.

Similarly, in a report to clients on Sept. 1, Credit Suisse analyst Mike Rizvanovic pinpointed National Bank of Canada as having the most capacity to raise its dividend, estimating that at a 45 per cent payout, the bank’s quarterly dividend could jump 40 per cent in fiscal 2022 to $0.99 per share from the current rate of $0.71.

For the Big Six lenders as a whole, Rizvanovic pegged the average potential quarterly hike at 17 per cent.

“Regulatory [Common Equity Tier 1] capital ratios for the Big Six continue to trend higher, ending the third quarter at a very robust average of 13 per cent, driven mainly by strong earnings growth but also aided by an absence of share buybacks and a suppressed quarterly dividend due to OSFI’s ongoing restrictions on capital return to shareholders. We continue to model [the fourth quarter] for a removal of restrictions,” Rizvanovic said in the report.

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Netflix’s subscriber growth slows as gains from password-sharing crackdown subside

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Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.

The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.

Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.

The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.

The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.

The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.

The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.

Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.

In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.

“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.

As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.

Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.

The Canadian Press. All rights reserved.

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