CBA launch fundraising after $9b profit
THE Commonwealth Bank has launched a $5 billion capital raising alongside its record $9.15 billion profit, but analysts warn it may need to tap shareholders again to satisfy regulators.
The country’s biggest lender is raising the funds from shareholders to comply with a move by the Australian Prudential Regulatory Authority to bring the big four bank’s capital reserve levels into line with the world’s top financial institutions.
The move came as CBA posted a 5 per cent increase in cash profit to $9.15 billion and boosted its final dividend by 4 to $2.22 a share.
Chief executive Ian Narev (pictured) said the capital raising would take CBA’s buffer against financial shocks above the level desired by regulators.
CBA is offering shareholders one new share for every 23 they own at $71.50 each in a renounceable rights issue. That is a 10.5 per cent discount to the closing price of the group’s shares on Tuesday, adjusted for the bank’s full-year dividend.
The shares were put in a trading halt yesterday, to resume trading next week.
“For us the right thing was always going to be do it this way so that all the shareholders get a chance to participate and those that don’t can sell their rights and get a bit of money,” Mr Narev said.
He said the decision was not affected by ANZ’s controversial $3 billion capital raising announced last week, where institutional investors got most of the new shares.
But the CBA’s $5 billion raising is smaller than some analysts expected.
Credit Suisse analyst Jarrod Martin said it would fall well below what regulators have requested once adjusted for changes to mortgage risk weights and other factors.
Morningstar analyst David Ellis said CBA would probably need to add another $3 billion to its reserves in the next few years, but it would likely raise that through its dividend reinvestment plan.
CBA’s full-year results painted a mixed picture, with tough competition for loans and falling interest rates weighing on the profitability of its lending.
Mr Narev said the Reserve Bank’s efforts to stimulate the economy by cutting interest rates had helped bolster the housing sector while the Federal Government’s measures to help small businesses were also helping the economy.
“The Australian economy has some good foundations,’’ he said. “There is a high demand from people who want to buy Australian goods and services, invest in Australia, educate their children in Australia, visit Australia and in some cases move to Australia.”