WBC - Westpac

[macduffy]

I think someone is accumulating WBC. Last sale in ASX yesterday was aud $16.50 or nzd $16.80. This morning on NZX has buyers at $17.60. Now thats quite a difference for market cap. We in NZ are not price setters, but follow the buy/sell on the ASX. Now I have been trading these for a few years, and never has the NZX been a price setter before the ASX opens.

A similar situation with ANZ. NZX closed at $18.00 (from memory) last night and ASX $16.96. I took this to be a timing difference and of course ANZ on NZX trades fairly thinly. I expected to see a correction this morning but ANZ up marginally to $18.06 so far on NZX.

Edit: Both stocks seem to have sorted out the forex relativity issue now!

[Tomtom]

I note ANZ CEO Antonio Watson saying that deferred home loans are treated as 'still performing' by the bank. Actually the Reserve Bank has issued guidance to banks that for borrowers taking advantage of COVID-19 mortgage deferrals, the loans should be treated as performing and not in arrears for capital purposes. Keep a very, very close eye on this as a shareholder there is going to be quite some temptation to hide NPLs in that portfolio so they don't have to be reclassified.

[macduffy]

Auditors will earn their fees on this. Not to mention risking their hard earned reputations if they do a shoddy job.

Disc: Not a member of that profession but a shareholder in WBC and ANZ.

[stoploss]

I note ANZ CEO Antonio Watson saying that deferred home loans are treated as 'still performing' by the bank. Actually the Reserve Bank has issued guidance to banks that for borrowers taking advantage of COVID-19 mortgage deferrals, the loans should be treated as performing and not in arrears for capital purposes. Keep a very, very close eye on this as a shareholder there is going to be quite some temptation to hide NPLs in that portfolio so they don't have to be reclassified.

Normally someone taking the deferral option would be marked with a hardship flag , which would be reported to credit agencies. So I understand currently we are in unchartered waters , but it is at odds with normal porcudure for these to be classified as "still performing"

[traineeinvestor]

A similar situation with ANZ. NZX closed at $18.00 (from memory) last night and ASX $16.96. I took this to be a timing difference and of course ANZ on NZX trades fairly thinly. I expected to see a correction this morning but ANZ up marginally to $18.06 so far on NZX.

Edit: Both stocks seem to have sorted out the forex relativity issue now!

Okay, this is something I've never quite managed to get straight in my own mind:

WBC shares listed in Australia pay dividends with full Australian franking credits.

WBC shares listed in New Zealand pay dividends without full New Zealand imputation credits.

Which means, in theory, that WBC shares listed in Australia are more valuable to Australian shareholders than WBC shares listed in New Zealand are to New Zealand shareholders.

The fact that Australian marginal tax rates are higher than New Zealand's makes the difference even bigger (and Australia's super fund regime compounds that factor).

So, WBC should trade higher on ASX than on NZX but then there's the ability to move shares between the NZ and Au registers at nil cost (although with some delay) which could, in theory, be used to arbitrage the valuation difference.

Which all seems very logical until it occurs to me that the movement would largely be one-way until the NZ register runs out of WBC shares or liquidity dries up completely.

I'm sure I'm missing something obvious but I can't for the life of me figure out what.

[macduffy]

Two points:

In my experience, neither ANZ nor WBC pay "full" Australian franking credits nor NZ imputation credits on their dividends. Such are limited by a number of factors of which the extent of profits earned in each country is one.

The facts of time differences for trading; fluctuating exchange rates; relative liquidities and demand in each country make trying to arbitrage the two a bit of a lottery. The delay in making a shunt from one register to the other adds to the problem.

[stoploss]

Two points:

In my experience, neither ANZ nor WBC pay "full" Australian franking credits nor NZ imputation credits on their dividends. Such are limited by a number of factors of which the extent of profits earned in each country is one.

The facts of time differences for trading; fluctuating exchange rates; relative liquidities and demand in each country make trying to arbitrage the two a bit of a lottery. The delay in making a shunt from one register to the other adds to the problem.

Be alright if you were a fund manager and had stock on both sides of the Tasman .

[traineeinvestor]

Two points:

In my experience, neither ANZ nor WBC pay "full" Australian franking credits nor NZ imputation credits on their dividends. Such are limited by a number of factors of which the extent of profits earned in each country is one.

The facts of time differences for trading; fluctuating exchange rates; relative liquidities and demand in each country make trying to arbitrage the two a bit of a lottery. The delay in making a shunt from one register to the other adds to the problem.

Thanks for the response but that doesn't quite fit with my own experience - after the old Westpac Trust shares became WBC shares on NZX, I found that there was always NZ NRWT deducted (meaning the dividends were never fully imputed in NZ) but once I shifted my shares to the ASX there was never any NRWT deducted (meaning the dividends have always had at least 30% franking credit).

[Snoopy]

Okay, this is something I've never quite managed to get straight in my own mind:

WBC shares listed in Australia pay dividends with full Australian franking credits.

WBC shares listed in New Zealand pay dividends without full New Zealand imputation credits.

Correct but not complete.

WBC shares listed in Australia pay dividends with partial NZ imputation credits attached.

WBC shares listed in New Zealand pay dividends with full Australian franking credits attached.

Of course, you don't hear much about that. Australian domiciled WBC shareholders can't use NZ imputation credits. NZ domiciled WBC shareholders can't use Australian franking credits. Both are in almost all circumstances worthless to their respective shareholders. That doesn't mean they don't exist though.

Consider the case of an NZ domiciled investor who moves to Australia early in the financial year. That could mean they become an Australian taxpayer. In that situation Australian franking credits earned in New Zealand with shares on the NZ share register could be claimed in Australia.

Which means, in theory, that WBC shares listed in Australia are more valuable to Australian shareholders than WBC shares listed in New Zealand are to New Zealand shareholders.

On a pure dividend yield basis you are correct. However investors don't invest purely to gain dividend yield. NZ investors also invest outside the NZX to gain exposure to business sectors and markets that are not available within the NZX.

So, WBC should trade higher on ASX than on NZX but then there's the ability to move shares between the NZ and Au registers at nil cost (although with some delay) which could, in theory, be used to arbitrage the valuation difference.

There is no 'theory' about it. What you outline is what happens. There is no difference between WBC shares listed on the NZX and WBC shares listed on the ASX.

Which all seems very logical until it occurs to me that the movement would largely be one-way until the NZ register runs out of WBC shares or liquidity dries up completely.

I'm sure I'm missing something obvious but I can't for the life of me figure out what.

Hopefully I have filled in what you are missing.

SNOOPY

discl: hold WBC (on the NZX if it matters).

[Snoopy]

Thanks for the response but that doesn't quite fit with my own experience - after the old Westpac Trust shares became WBC shares on NZX, I found that there was always NZ NRWT deducted (meaning the dividends were never fully imputed in NZ) but once I shifted my shares to the ASX there was never any NRWT deducted (meaning the dividends have always had at least 30% franking credit).

NRWT or 'Non Resident Withholding Tax' is a different issue. IIRC NWRT in NZ has always been deducted at a lesser rate than the prevailing NZ company tax rate. NWRT is not connected to imputation, because imputation credits are not available for non-residents. Many NZ companies pay a bonus dividend to overseas shareholders: in effect a payment which conveniently offset the effects of NWRT for overseas holders.

Once 'Westpac Trust', -which was actually a property investment with a 1:1 equivalence to WBC shares as regards dividend rate- was dissolved, then those NZ shareholders of New Zealand company 'Westpac Trust' became NZ based shareholders of Australian company WBC. Being an Australian company, WBC didn't have the New Zealand tax loophole of being able to pay a supplementary dividend to overseas shareholders in the NZ register to offset any NRWT that might have been payable by overseas shareholders.

Different governments have different policies on withholding tax. My experience is as a New Zealander holding Australian shares on the ASX. In this instance, and where a company has fully franked dividends, then no extra withholding tax (you can argue that the unusable franking credit is also a withholding tax) deducted from Australia. It is up to me to pay any NZ tax obligations on these dividends once that money hits my bank account. I think this aligns with your experience Traineeinvestor?

I have never been a non-NZ resident holding NZX listed, but Australian domiciled, shares. So I can't comment directly on your earlier experience of holding WBC shares on the NZX as an overseas resident Traineeinvestor.

SNOOPY