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Connexus : Issue 41
Robert Ryan acknowledges the irony of launching a share buyback at a time when other mutuals are considering a share instrument as a tier one capital solution. “Obviously you need to have access to capital – it’s so important for the strength, stability and growth of a financial institution – and capital markets have been difficult,” says Ryan, IMB’s chief executive. He points out that IMB isn’t changing its structure in one hit. It plans to buy back the $46 million worth of shares over a period of time in a manner provided by the Cor porations Act. This buyback, which closed on 19 September, will be the first of a ser ies of buyback s. “It’s anticipated that it could take up to 10 years, although there is the potential that it could be slightly sooner,” says Ryan. “We can show that over time we actually don’t need the share capital because we’re in a good, sust ainable position where we have, and will continue to internally generate, excess capital,” he says. IMB first issued shares in 1989 to support its expansion into the Sydney market. While the ordinary shares have been one of its sources of tier one capital, IMB’s requirements have been strengthened over time by a sustainable financial model and access to more ef ficient sources of capital, says Ryan. IMB is already well-placed to meet the Basel III requirements, he adds. After a review by external consultants, the IMB board resolved to simplify its structure with the buyback. Ryan says there’s been a high cash cost of servicing the shares. “IMB has always been able to generate plenty of capital to sustain its organic growth, and this tier one capital is becoming expensive,” he says. “ The Board’s view was that it would be better to reduce and then eliminate that capital cost.” The buyback decision is also a way of reaffirming IMB’s mutual status. Ryan says that having shareholders has made the organisation’s structure appear to be more complicated than it is. “People get confused – we are a mutual and yet we’ve got shareholders,” he says. “ We have always been, and the authorities have always seen us as, a mutual. And we’ve always operated as a mutual. “The reality is that there is a real opportunity to be the alternative to the listed banks or financial institutions, and we also see that the government is serious about supporting what they’re calling a ‘fifth pillar segment’. “ That is the space that IMB has always played in and that is the area that the board of IMB can see will provide IMB with the greatest competitive advantage,” Ryan says. There’s a third benefit in reaffirming IMB’s mutual structure – the possibility of a merger, he says. “It improves IMB’s attractiveness as a potential merger par tner for other mutual ADIs. Definitely. “We think there‘ll be further consolidation in the mutual sector and we’d certainly like to participate in that. If that’s assisted by simplifying the structure then that makes sense,” he says. For those mutuals considering a share instrument to raise capital, Ryan is reluctant to give advice, but when pressed, he says that looking at IMB’s experience, it’s useful to carry out comprehensive for ward projections to predict the effect of the instrument on the organisation’s structure long into the future. “It really comes down to how much capital you need for your ow n balance sheet and growth and what you’re generating inter nally,” Ryan says. Tracey Evans is editor of Connexus. a share of the action IMB’s share buyback is off and running, and interest is expected to be strong. By TrACey evAns We’re in a good, sustainable position where we have, and will continue to internally generate, capital. Robert Ryan, chief executive, IMB NEWS 10 Connexus