Nab To Seek Capital Top-up
Sydney Morning Herald
Friday October 17, 2008
NATIONAL Australia Bank is expected to undertake a capital raising, seeking as much as $2.5 billion in the next few days, after bringing forward its annual results by nearly a fortnight and confirming its full-year cash profit will fall below $4 billion.
In a move designed to bolster the most important part of its balance sheet - its so-called tier one capital - NAB is set to tap investors through a specialist underwriting exercise on its forthcoming dividend scheme to secure the additional finance.It also hinted at other measures in a statement to the stock exchange that said it would report "strong" capital and liquidity positions - an indication it has been storing up cash to meet lending needs and the banking regulator's demands for bigger reserves.That will set it apart from the US and British banks that have made huge losses and have been forced either to go cap-in-hand to shareholders in deeply-discounted share issues to raise capital or even succumb to state ownership as a result of the worldwide financial maelstrom. Analysts indicated that yesterday's surprise move by NAB to announce its 2008 earnings next Tuesday, rather than at the end of this month, was aimed at preparing the volatile market - and shareholders - for a financial top-up of between $2 billion and $2.5 billion.The move means NAB will get in before ANZ and Westpac, which are due to report in the next three weeks and may be hatching similar plans.It also fuelled speculation that NAB, which has fallen behind its two major rivals, the Commonwealth and Westpac, in snapping up BankWest and St George respectively, was planning an assault on regional competitor Suncorp to strengthen its Australian retail banking network.NAB has been working on an early release of its results for the past two weeks, in an attempt to settle market uncertainty about its financial health at a time when the global credit crisis has claimed several high-profile banking victims.Like its domestic competitors, the bank has experienced wild fluctuations in its share price in recent weeks but it has felt particularly vulnerable because of its exposure to a complex series of investments in US subprime housing loans which kicked off the credit crunch last year.Write-downs on that portfolio have cost NAB $600 million in lost profits this year, which was confirmed by its disclosure yesterday that its cash earnings for the 12 months to the end of September will be "approximately" $3.9 billion. That will be 11 per cent lower compared to last year's $4.4 billion - a figure which underlined that the higher cost of borrowing from dislocated credit markets has also wiped out any expectations of real profit growth over the past 12 months. NAB also revealed that its second half dividend would be the same as its interim payout - 97c a share - which will make it $1.94 for the year, just 12c higher than last year's figure. The bank's shares dropped $1.02, or 4.3 per cent, to $22.70.
© 2008 Sydney Morning Herald