CBA eyes options to raise buffer billions
THE Commonwealth Bank says it is working on “a number of options” to bolster its books amid mounting speculation it will turn to investors for billions of dollars in extra capital.
In a statement to the Australian Stock Exchange yesterday, the banking titan said it had yet to decide whether to push ahead with any of the potential capital management options.
It came amid widespread market expectations the company would follow smaller counterparts National Australia Bank and ANZ with multibillion-dollar capital raising programs.
“CBA continues to work on a number of options for managing capital but no decision has been made,” the bank said.
Analysts have widely speculated the group, Australia’s biggest bank, will turn to investors for a funding injection of $5 billion or more when – if not before – it posts its full-year results tomorrow.
Banks have been raising cash in response to demands from the industry watchdog, the Australian Prudential Regulation Authority, that they fortify their books to guard against another financial crisis.
ANZ last week announced it would tap investors for $3 billion. The group’s share price plunged 7.5 per cent on Friday in the wake of the announcement, the bank’s biggest mar- ket hiding on any day since the depths of the financial crisis.
Shares in the other banks also fell heavily in the wake of the revelation. They all recovered yesterday, gaining 1 per cent to 1.5 per cent.
The CBA’s statement came as NAB released a quarterly trading update, revealing its cash profit – a closely watched measure of underlying earnings in the banking industry – climbed 9.4 per cent in its third quarter, the three months to June. It clocked in at $1.75 billion on an unaudited basis.
In the update, NAB also said it would make an extra provision of up to £420 million ($882 million) for costs linked to an industry-wide scandal in the UK, where banks are under scrutiny for “mis-selling” financial products.
NAB last October made £670 million in provisions for the scandal, and has set aside £1.7 billion to help pay any such costs. The bank did a $5.5 billion capital raising this year to provide those funds and bolster its books.
NAB chief Andrew Thorburn said the rise in thirdquarter earnings came as bad and doubtful debts – debt written off as it is unlikely to be repaid – declined 15 per cent to $193 million.
“Business banking loan growth has further accelerated in our priority segments which is encouraging, as are recent improvements in Australian business confidence,” he said.