Wry & Dry

Laughable: ANZ Bank prepays tax to bring forward franking credits

W&D admires good corporate citizens, such as those that pay its taxes.  But ANZ Bank has now taken the dividend-payout scandal to laughable levels.  And deliberately paid more tax than needed.

In FY-15 the bank prepaid some of its FY-16 company tax to get enough franking credits to maintain its fully franked dividend.  Whaaaat!  And to make matters even more laughable, it said that it would do the same in FY-16 - i.e. prepay FY-17 tax in FY-16.  It has to do this to make up for the FY-16 franking credits pulled forward to FY-15.   This is ridiculous.

This policy has to be unwound at some stage.  Sooner or later the company will have to pay out partly-franked dividends, or reduce its dividend payout ratio.  Or both.  Pain to shareholders.

Or maybe this is not ridiculous.  The bank has excess capital, and so perhaps it has worked out that the return for shareholders is better by pre-paying tax than leaving funds on deposit with the RBA.  And if it ever needs the funds, it just uses up some of the prepayment.

But, any way you look at it, this is getting weird.  But what the heck, let's live in the moment.