Australia and New Zealand Banking Group (ASX:ANZ) announced a $3bn capital raising, which will consist of a $2.5bn institutional share placement and a $500m Share Purchase Plan (SPP).
ANZ has requested a trading halt this morning and is scheduled to resume trading at 10:00am on 7 August 2015. At the time of the announcement ANZ was trading at $32.58
The proposed capital raising comes in response to new capital requirements for Australian banks which were recently announced by the Australian Prudential Regulation Authority. The Banking giant aims to “quickly and efficiently accommodate additional capital requirements”. As of 1 July 2016 major bank Australian mortgage portfolios have to increase the average credit risk weight to 25%.
The price of the new shares will be announced as soon as the raising is completed. However ANZ has confirmed that new shares will be valued above $30.95 which is a discount of approximately 5% compared to yesterday’s closing price.
ANZ has also provided a trading update to the 9 months leading up to 30 June 2015. Cash profit was $5.4bn which is an increase of 4.3% to the previous corresponding period, while profit before provisions grew 5.1%. ANZ also confirmed that during the last quarter revenue “grew at a slightly faster rate than in the first half, while expenses growth for the three month period slowed.”
Australian banks have found technical resistance in the past 12 months following years of outperformance. ANZ’s share price is up 1.5% year to date but down 1.7% in the past 12 months. Therefore ANZ’s has been the worst performer amongst the big four banks with Commonwealth Bank of Australia (ASX:CBA) being once again the star performer. High dividend payouts and an interest rate cut from the RBA in February have resulted in inflated valuations for the big banks at the beginning of the year. Following flat results from some of the banks, shares like ANZ experienced a significant correction in the second quarter, which has left the stock flat for the past year.
The most likely scenario for the upcoming 12 months will be a continuation of the sideways trend until the market receives more clues about the strength of the Australian economy as well as the impacts of the new capital requirements for banks. While the housing market remains an ever-present risk for financial institutions Wise-owl maintains its hold advice for banks, however we discourage from large purchases as the current levels and encourage diversification.
Author: Simon Herrmann
Aug 06, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.