What’s going on with the banks? First it was ANZ and then yesterday CBA predictably followed suit with its $5 billion capital raising – and now there is talk that Westpac is next in line.
Is this the beginning of the end for the banks? Well they’ve sure had a rough time on the share market of late. But to be honest, smart investors should have seen most of this coming. The regulator has been talking about dampening investor lending since at least late last year and we know that the regulator expects the banks to be “unquestionably strong” when it comes to their capital adequacy.
So far this year, the big four banks have announced a total $16 billion in capital raisings to meet these new regulatory requirements. As we’ve seen, some of these offerings, like the ANZ one, aren’t great for retail investors, but others, like the CBA offer, look enticing.
[1]Source: Yahoo!7
Like Charlie says in his article today, investors should not be deterred by the bad ANZ offer from taking up their CBA rights.
“The ONLY question you need to ask yourself about the CBA rights issue is whether you want to buy CBA shares at $71.50. That will turn out to be “free money” just like the NAB rights issue was.”
[2]Source: Yahoo!7
Capital raisings aren’t the only way banks can improve their capital adequacy, they can also issue hybrids and Paul Rickard was right on the money [3] when he said the Westpac hybrid would be well supported.
Westpac Banking Corporation has set the margin on its Capital Notes 3 securities offer at 4% above the bank rate and also increased the size of the issue to $1.25 billion from $750 million due to an increased take-up rate.
Paul last reviewed the banks in May, after their quarterly updates. The market had hit them hard then too but he wasn’t convinced then that the yield trade was over [4].
Yesterday Paul gave CBA’s results a 6 out of 10 – a bare pass [5]. It still might be ahead of the rest but is facing increasing challenges. Here are his current preferences for the banks:
- NAB
- Commonwealth
- Westpac
- ANZ
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