COMMONWEALTH Bank has launched a monster $5 billion capital raising alongside its record $9.15 billion profit but analysts warn it may not be enough to plug a possible shortfall in its reserves.
AUSTRALIA’S biggest lender is tapping shareholders for funds to comply with a move by the Australian Prudential Regulatory Authority to bring the big four bank’s capital reserve levels into line with the world’s top financial institutions.
The move came as CBA posted a five per cent increase in cash profit to $9.15 billion and boosted its final dividend by four cents to $2.22 per share.
It is the last of the big four banks to raise funds, with ANZ, NAB and Westpac all launching multi-billion dollar capital initiatives in the past few months.
Chief executive Ian Narev says it will take CBA’s buffer against financial shocks above the level desired by regulators.
But the $5 billion raising is smaller than some had expected and analysts say it probably won’t be enough to fulfil all of the bank’s capital needs.
Credit Suisse analyst Jarrod Martin said the bank’s capital buffer would fall well below what regulators have requested once adjusted for changes to mortgage risk weights and other factors.
He questioned whether the bank could meet its future capital needs without cutting its dividend payout ratio – a move that would be very unpopular with the bank’s retail shareholders.
“Something, it seems to me, has to give,” he told Mr Narev during the company’s results briefing.
Mr Narev stood by the figure, but stopped short of ruling out further capital raisings.
“We look at all different scenarios, we model them and that’s how we came up with the number that we have for the rights issue and we’re very happy with that,” he said.
Morningstar analyst David Ellis said the bank would probably need to add another $3 billion to its reserves in the next few years, but said it would likely raise that through its dividend reinvestment plan.
“I don’t think you will see another big $5 billion capital raising,” he said.
CBA is offering existing investors one new share for every 23 they own, at $71.50 each, a 10.5 per cent discount on the $82.12 CBA shares last traded at.
The bank’s full year results painted a mixed picture, with tough competition for loans and falling interest rates weighing on the profitability of its lending.
Expenses rose faster than revenue in the second half, though costs were inflated by one-off factors, and both measures were up five per cent for the year.
Bad and doubtful debts were flat from a year ago at historically low levels.
ANOTHER RECORD PROFIT FOR CBA
* Cash profit up 5pct to $9.15b
* Net interest income up 5pct to $75b
* Final dividend up four cents to $2.22, fully franked
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