NAB raising 'not a war chest'
Sydney Morning Herald
Thursday July 23, 2009
SOME of the National Australia Bank's $2.75 billion capital raising is expected to fund further piecemeal acquisitions but its chief executive, Cameron Clyne, insists the lender is not building a war chest to fund global expansion.The share placement, which also will be used to soak up rising bad debts, is the latest in a string of capital raisings among the big banks over the past year, tapping shareholders for more than $16 billion.The NAB move comes on the heels of ANZ's bigger-than-expected $2.2 billion raising this month, largely aimed at giving it firepower for acquisitions in Asia.NAB had waded into the market late last year, picking up $3 billion from investors. The placement has sparked speculation a second wave of raisings could emerge from the Commonwealth Bank and Westpac.Institutional investors were offered shares in the underwritten placement at a minimum price of $21.20 each, a 10 per cent discount on NAB's previous closing price. Last night shares were being bid at $21.50 each. NAB will launch a separate $750 million share purchase plan for retail investors.For NAB, the placement is aimed at bolstering its balance sheet as it is under pressure on several fronts. It needs to top up capital as its rate of bad debts continues to rise; it is experiencing a surge in demand for loans; its pension plan in Britain is facing a shortfall; it faces about $525 million in back taxes in New Zealand after losing a landmark court case last week.Elsewhere NAB has just signed off on the $825 million purchase of Aviva's Australian life insurance business as it tries to bulk up its wealth management business.After the raising, NAB's tier-one ratio a measure of its capital strength will increase to 8.8 per cent from 8.2 per cent, putting it at the upper end of the tier compared with its rivals."NAB now has plenty of capital to pursue growth and shows no ... undue blow-out in impairments," said a Citigroup analyst, Craig Williams.Indicating the bank was not preparing a sudden move on the banking arm of Suncorp Metway, Mr Clyne said any acquisitions were likely to be "strategic bolt-ons", or no bigger than the Aviva deal. Analysts expect this could extend to further acquisitions of deposit books in the US. Locally, the bank has been linked to acquiring a stockbroking franchise."We are operating in unprecedented conditions that are presenting unique opportunities to grow our business," Mr Clyne said. "Strengthening our balance sheet allows us to take advantage of these."However, he said the bank was not seeking to build a war chest "nor are we contemplating anything transformational", he added.Still, profits remain under pressure. Unaudited June quarter earnings are $900 million, suggesting second-half earnings of about $1.8 billion. Charges for bad and doubtful debts for the quarter increased by $1.06 billion. Analysts said the total losses were running in line with expectations of a bad debt charge of about $2 billion for the second half.
© 2009 Sydney Morning Herald