CBA shares drop to five-year low

Commonwealth Bank of Australia (CBA) shares have dropped to a five-year low after it
announced an unpriced $750 million share placement to Merrill Lynch to redeem
securities that were a mixture of debt and equity.
CBA's stock finished $1.50, or 5.00 per cent weaker, at $28.50 - its lowest since
December 2003 - amid general weakness across the banking sector after a raft of
capital raisings.
Investors exited CBA after it said it would finance the PERLS II hybrid securities
and base the number and price of the new shares issued on the daily volume-weighted
average prices of CBA's shares on the 10 trading days before Wednesday's
announcement.
The new shares will be issued before the end of January and before the hybrid
securities are redeemed for cash on the rollover date of March 16, 2009.
The bank said it may adjust the size of the placement or reduce the pricing period
depending on market conditions.
CBA flagged the conversion of the hybrids to analysts at a market update on November
13.
At the time, chief executive Ralph Norris said the bank had "a lot of flexibility
and a lot of tools in our tool kit to raise tier 1 capital" without having to
conduct a capital raising.
Market expectations that CBA would raise capital, as its peers had done, had taken
its toll as CBA joined the queue too late, market players said.
"CBA has been sold down three times by fund managers wanting cash in order to buy
the others (banks)," Marcus Padley, author of the Marcus Today stockmarket
newsletter said.
"National Australia Bank (NAB) has raised $3 billion, QBE $2 billion and Westpac
$2.5 billion - you want to be at the front of that queue, not the back," he said.
Westpac shares on Wednesday fell $1.51, or 8.45 per cent, to $16.37, while NAB lost
30 cents to $19.60 and ANZ Banking Group firmed five cents to $14.15.
The absence of a price set on the $750 million placement, as well as its dilutive
impact, also impaired CBA's performance, Shaw Stockbroking head dealer Jamie Spiteri
said.
"This was compounded by the fact that the share price was almost 10 per cent weaker
yesterday," he said.
CBA's move follows its announcement that it would launch a $1.25 billion
debt-raising on Wednesday from the sale of $750 million of transferable certificates
of deposit (TCDs) that mature in December 2013 and $500 million of TCDS maturing in
December 2011.
On Wednesday, the debt-raising ballooned to $2.7 billion after the two tranches of
fixed and floating rate bonds were priced, with the five-year notes being the first
government guaranteed bonds launched in the domestic market.
The five-year fixed rate notes worth $1.9 billion were priced at mid-swaps plus 120
basis points, while the five-year floating rate notes worth $300 million were priced
at 120 basis points above the 90-day bank bill swap rate.
CBA priced $500 million worth of three-year non-guaranteed floating rate notes at
160 basis points above the 90-day bank bill swap rate.
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.
CBA syndicate manager Paul O'Brien told AAP on Tuesday the debt issue would assist
the bank with its annual funding program.