The australian market hasn't even begun seeing the effect of the property crash yet. Theres a reason why the banks are raising the cash now.
Australian Banks Raise $5.7 Billion Bracing for Rising Defaults Email | Print | A A A
By Malcolm Scott
Dec. 10 (Bloomberg) -- Commonwealth Bank of Australia, Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. raised $5.7 billion this week selling stock and bonds to boost balance sheets dented by rising defaults.
Commonwealth, the second-biggest bank by market value, offered government-backed debt as part of a A$1.25 billion ($824 million) bond sale yesterday and today said it will sell up to A$750 million in stock to Merrill Lynch & Co.
Westpac, the biggest, sold A$2.5 billion in stock at an 11 percent discount and $1.5 billion of three-year 3.25 percent notes, sending its shares as much as 10 percent lower in Sydney today. ANZ, the No. 4 bank, sold $1.25 billion of three-year 3.2 percent bonds and $500 million of two-year floating-rate notes, data compiled by Bloomberg show.
“The spate of raisings hints that bad debt provisions will have to rise in the face of a weakening economy,” said Hans Kunnen, head of investment market research at Colonial First State Global Management, which manages $86 billion. “Banks are setting themselves up for a difficult period ahead amid a very tough funding climate.”
Australian financing costs declined for the first day in six as the money raised eased banks’ need to hoard cash to meet year-end funding requirements. The difference between the rate Australian banks charge each other for three-month loans and the overnight swap rate, a measure of cash scarcity, fell three basis points to 80.50 at 10:18 a.m. in Sydney.
The measure rose to a one-month high of 83.50 basis points yesterday after averaging 11 basis points in the five years before the credit crunch started in July 2007. A basis point is 0.01 percentage point.
Market Seizure
Credit markets, which began seizing up after BNP Paribas SA halted withdrawals on three funds in August 2007, froze after the bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15, spurring governments and central banks around the world to bail out financial institutions and pump cash into money markets.
Australian banks have initiated about $4 billion of government-backed bond sales since a guarantee came into effect Nov. 28. That adds to more than A$9 billion of share sales announced in the past two months.
Globally, financial companies have raised almost $890 billion since the global credit crisis began last year.
Commonwealth will sell up to A$750 million of stock to Merrill by the end of January, with proceeds used to redeem hybrid securities maturing on March 16, the Sydney-based bank said in a statement to the Australian Stock Exchange today.
“Given uncertain equity market conditions we consider it prudent to do this now,” David Craig, chief financial officer, said in the statement.
Shares Slump
Westpac shares tumbled A$1.49, or 8.3 percent, to A$16.39 on the Australian stock exchange as of 2 p.m. in Sydney. Westpac sold new shares to institutional investors at A$16 apiece, 11 percent lower than the closing price on Dec. 8, the Sydney-based bank said yesterday in a statement.
Westpac, which completed a A$14 billion takeover of St. George Bank Ltd. last month, had a 93 percent increase in bad debts in the year ended Sept. 30 after lending to failed firms including Allco Finance Group and ABC Learning Centres Ltd.
The share sale boosts Westpac’s Tier 1 capital ratio, a key measure of financial strength, by as much as 157 basis points to about 8.32 percent, the bank said yesterday. The transaction was underwritten by JPMorgan Chase & Co., UBS AG, and Morgan Stanley.
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