ID :
36153
Wed, 12/17/2008 - 17:26
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http://m.oananews.org//node/36153
The shortlink copeid
CBA offers shares at revised $26 price
Commonwealth Bank of Australia Ltd (CBA) pulled the pin on a $1.65 billion equity raising and replaced it with a cheaper deal after investors complained they had not been informed of a change in its outlook.
Angry investors said the change to its bad debt expenses forecast, which could lead to a six per cent decline in 2008/09 annual earnings, was not made known while the initial share placement was being conducted on Tuesday.
CBA on Wednesday was raising the $1.65 billion anew after the country's biggest lender terminated placement manager, Merrill Lynch, and replaced it with UBS.
The bank bunkered down early in the day and put a trading halt on its shares as it tried to sort out the mess.
But it soon became clear CBA would have to appease angry institutional investors by revising the placement terms.
CBA ended its arrangement with Merrill, claiming the broker "did not inform potential investors of various disclosures made by the bank."
It engaged UBS to drive a new placement at $26 a share. It was still being finalised late on Wednesday afternoon.
The new price represented an 11 per cent discount to CBA's closing share price on Tuesday at $29.15.
The earlier $1.65 billion sale share conducted by Merrill on Tuesday was at $27 a piece.
CBA was also finalising arrangements for $357 million raising through a previously announced placement at $28.37 per share to Merrill.
This deal has not been affected by the new placement on Wednesday.
In total, CBA is raising $2 billion.
Market sources said CBA had to cut the share placement price to appease investors and also to get UBS, which saved the day, to fully underwrite the new offer.
In its statement on Tuesday, CBA had said its full year loan impairment expense to gross loans and acceptances would be around 60 basis points, with the majority occurring in the first half of 2008/09.
That was higher than its bank forecast last month for an impairment expense of between 40 and 50 basis points.
Normally, investors would have been sent the new forecast together with the offer of the placement.
However, an apparent mix-up between CBA and Merrill meant the announcement wasn't sent until after the placement was completed.
Analysts said the new forecast could translate to a reduction in full year earnings of around six per cent.
IG Markets research analyst Ben Potter said the events were "embarrassing" but said
UBS' swift action had rescued the bank.
Shares in the banking sector fell as the events around CBA played out.
"So what was looking to be a fairly bullish trading session really fizzled on the back of a rather unfortunate turn of events in the banking sector," CMC Markets analyst David Taylor.
CBA is raising the funds to bolster its capital position in the face of a deteriorating world and domestic economy, in which the bank expects its exposure to bad debt to rise and credit conditions will worsen.
CBA's Tier 1 capital ratio was expected to be about 8.5 per cent on December 31 following the raising, bringing it into line with its peers.
Goldman Sachs JBWere analysts James Freeman, Ben Koo and Elizabeth Rogers on Wednesday cut their profit forecast for CBA's 2008/09 earnings by six per cent after the bank's bad debt outlook changed.
"Whilst our full year bad debt charge was already around CBA's downgraded guidance, we have added additional cushioning given the increasing uncertainty around CBA's bad debt position," the analysts wrote in a note to clients.
Angry investors said the change to its bad debt expenses forecast, which could lead to a six per cent decline in 2008/09 annual earnings, was not made known while the initial share placement was being conducted on Tuesday.
CBA on Wednesday was raising the $1.65 billion anew after the country's biggest lender terminated placement manager, Merrill Lynch, and replaced it with UBS.
The bank bunkered down early in the day and put a trading halt on its shares as it tried to sort out the mess.
But it soon became clear CBA would have to appease angry institutional investors by revising the placement terms.
CBA ended its arrangement with Merrill, claiming the broker "did not inform potential investors of various disclosures made by the bank."
It engaged UBS to drive a new placement at $26 a share. It was still being finalised late on Wednesday afternoon.
The new price represented an 11 per cent discount to CBA's closing share price on Tuesday at $29.15.
The earlier $1.65 billion sale share conducted by Merrill on Tuesday was at $27 a piece.
CBA was also finalising arrangements for $357 million raising through a previously announced placement at $28.37 per share to Merrill.
This deal has not been affected by the new placement on Wednesday.
In total, CBA is raising $2 billion.
Market sources said CBA had to cut the share placement price to appease investors and also to get UBS, which saved the day, to fully underwrite the new offer.
In its statement on Tuesday, CBA had said its full year loan impairment expense to gross loans and acceptances would be around 60 basis points, with the majority occurring in the first half of 2008/09.
That was higher than its bank forecast last month for an impairment expense of between 40 and 50 basis points.
Normally, investors would have been sent the new forecast together with the offer of the placement.
However, an apparent mix-up between CBA and Merrill meant the announcement wasn't sent until after the placement was completed.
Analysts said the new forecast could translate to a reduction in full year earnings of around six per cent.
IG Markets research analyst Ben Potter said the events were "embarrassing" but said
UBS' swift action had rescued the bank.
Shares in the banking sector fell as the events around CBA played out.
"So what was looking to be a fairly bullish trading session really fizzled on the back of a rather unfortunate turn of events in the banking sector," CMC Markets analyst David Taylor.
CBA is raising the funds to bolster its capital position in the face of a deteriorating world and domestic economy, in which the bank expects its exposure to bad debt to rise and credit conditions will worsen.
CBA's Tier 1 capital ratio was expected to be about 8.5 per cent on December 31 following the raising, bringing it into line with its peers.
Goldman Sachs JBWere analysts James Freeman, Ben Koo and Elizabeth Rogers on Wednesday cut their profit forecast for CBA's 2008/09 earnings by six per cent after the bank's bad debt outlook changed.
"Whilst our full year bad debt charge was already around CBA's downgraded guidance, we have added additional cushioning given the increasing uncertainty around CBA's bad debt position," the analysts wrote in a note to clients.
