ANZ announced it will issue $3bn of ordinary shares, which qualify as common equity tier 1 (CET1) capital, in two tranches, $500m for retail investor via a share purchase plan scheme and $2.5bn to institutions via a share placement. The shares will be issued at a price of $30.95. ANZ’s CFO Shayne Elliott said APRA’s decision to raise the risk weighting on residential mortgages had influenced the decision, especially in regards to the timing and amount of capital required. Readers may recall Yield Report’s July articles reporting APRA’s directive for banks to increase the amount of CET1 capital by 1 July 2016. A capital raising of $3b will go a long way towards meeting ANZ’s commitments.
APRA’s motivation behind requiring banks to raise CET1 capital has been partly driven by the Basel III committee recommendations and partly by David Murray’s Financial System Inquiry call for Australian banks to be “unquestionably strong”. The increased capital levels will offer greater protection to depositors, maintain confidence in the banking system and protect it against future shocks. One good side effect for bank debt holders is that the addition of ordinary share capital to banks’ balance sheets reduces the overall risk in holding debt securities – including hybrid securities.
Some analysts have suggested ANZ rushed to raise equity before the Commonwealth Bank reports its annual profit next week. It is widely expected that the Commonwealth will announce how it intends to deal with the new APRA risk weighting requirements with a number thinking it could seek to underwrite the Dividend Reinvestment Plan in order to raise capital in a smoother and perhaps fairer, way.