Westpac raises $2.5b from institutions

(AAP) Westpac Banking Corporation has joined the banking sector's capital raising bandwagon, raising $2.5 billion in shares from institutions.

The move comes as rival Commonwealth Bank of Australia (CBA) Ltd takes advantage of a government guarantee to launch a debt raising.
A week after swallowing St George Bank, Westpac on Tuesday sold 156.25 million
shares at $16.00 each and said the new shares would start trading on Tuesday,
December 16.
Brokers said the share price for the Westpac issue represented a 10.5 per cent
discount to Westpac's previous close at $17.88.
Westpac's retail shareholders will be able to subscribe for shares in an upcoming
non-underwritten share purchase plan, with total subscriptions capped at $500
million.
The size of the discount on Tuesday is in line with that applied by National
Australia Bank Ltd (NAB), which last month raised $3 billion of equity from
institutions.
It was also similar to the discount offered by CBA when it raised $2.1 billion to
acquire BankWest and HBOS Australia-linked funds manager St Andrews in October,
Austock Securities adviser John Buonaccorsi said.
Investors on Tuesday pushed CBA's shares down 8.54 per cent, or $2.80, to $30 in a
rush to rotate into Westpac's offer before CBA announced plans to raise $1.25
billion from the sale of debt in two tranches of three and five years.
CBA syndicate manager Paul O'Brien told AAP the debt issue would assist the bank
with its annual funding program.
CBA is offering $750 million of transferable certificates of deposit (TCDs) maturing
in December 2013 and will be guaranteed by the Commonwealth of Australia.
It is also offering $500 million of TCDS maturing in December 2011, which will not
be guaranteed.
The debt will be fixed or floating rate depending on investor demand.
The 2011 deal is being marketed at a margin of between 150 and 160 basis points over
the bank bill swap rate, and the 2013 line at 120 basis points over.
The five-year offer takes advantage of a wholesale funding guarantee announced by
the federal government on October 12 for senior unsecured debt instruments with
maturities of between 15 months and 60 months issued by financial institutions.
Westpac said the $2.5 billion equity raising would strengthen its balance sheet,
boosting its Tier 1 capital ratio to around 8.32 per cent - the second highest of
the Big Four banks behind NAB (NAB).
Banks are subject to a prudential capital ratio of eight per cent of total risk
weighted assets, half of which - four per cent - must be held in Tier 1 capital to
protect themselves from unanticipated losses and ensure their safety.
A bank's Tier 1 capital ratio affects its credit rating and ability to borrow and
pay dividends and Australia's major lenders have been taking steps to lift their
Tier 1 capital ratios above eight per cent.
Before the CBA bond launch, brokers said Westpac's equity raising would highlight
the need for CBA to catch up.
Westpac also said on Tuesday that earnings for the first two months of its fiscal
2009 were hit by higher impairment provisions.
These included top-up to provisions for previously announced exposures, including
those to troubled firms Allco Finance Group Ltd and ABC Learning Centres Ltd, as
well as for one corporate downgrade, the bank said.
But overall earnings are trending in line with its fiscal 2008 second half performance.
Shares in NAB and ANZ Banking Group Ltd also suffered falls on Tuesday as investors
sold and moved into the Westpac offer.
NAB was down $1.06 or 5.06 per cent to $19.90 and ANZ fell 83 cents or 5.56 per cent
to $14.10.
Westpac also said it had also set aside a $500 million buffer for "acquisition
adjustments" from its $15 billion takeover of St George, which could be used to
either prop up the St George acquisition, cover future dividends or make
acquisitions.
Before the CBA bond launch, brokers said Westpac's equity raising would highlight
the need for CBA to catch up.
"It sounds like they could be paying a little bit extra in goodwill," IG Market's
Ben Potter said.