Westpac to Raise A$3.5 Billion Amid Tighter Capital Rules

  • Lender to offer shares at discounted A$25.50 per share
  • Bank's full-year cash earnings rise 3% to A$7.82 billion

Westpac Banking Corp. will seek to raise A$3.5 billion ($2.5 billion) in a rights offering as it joins Australia’s other major lenders in shoring up capital to meet stricter regulations.

The Sydney-based lender is offering shares at A$25.50 each, 16 percent lower than Tuesday’s closing price, in the fully-underwritten offering, it said in a statement to the ASX on Wednesday. Unaudited full-year cash earnings rose 3 percent to A$7.82 billion.

The offering takes the total capital raised by Australia’s biggest four banks to almost A$20 billion this year. They are amassing capital to meet regulations partly aimed at sheltering them from any downturn in the nation’s booming housing market. Shares in Westpac,  which also announced a 20-basis-point increase in its variable home loan rate, were halted from trading pending the capital offering.

“This should wrap up major capital raising by the lenders for 2015 at least,” said Omkar Joshi, who helps oversee A$1 billion at Sydney-based Watermark Funds Management. “There are a few unknowns yet that may prompt more capital additions. Potential rule changes include risk weights for non mortgages, domestically systemically important bank buffers and leverage ratios.”

Regulatory Changes

The equity raising is in response to “changes in mortgage risk weights that will increase the amount of capital required to be held against mortgages by more than 50 percent,” Westpac said in the statement.

Westpac, which raised A$2 billion though a dividend reinvestment plan earlier this year, said the offering announced Wednesday will add about 100 basis points to its common equity Tier 1 capital ratio.

The Australian Prudential Regulation Authority in July announced it was increasing average mortgage risk weights, or the capital the banks need to hold against potential home-loan losses, to take effect in July next year. The regulator also said that month, before most of the capital raisings were done, the biggest lenders would need to add 200 basis points of capital to be considered among the world’s safest.

National Australia Bank Ltd. drew A$5.5 billion from a rights offering in May, which was the largest of its type in the country. Australia & New Zealand Banking Group Ltd. raised A$3.2 billion in September after raising A$480 million earlier this year, while Commonwealth Bank of Australia said last month it garnered A$5.1 billion.

ROE Target

Watermark’s Joshi said Westpac’s first increase in mortgage rates for owner occupiers in five years will protect the lender’s return on equity. The bank, which last month said it was targeting an ROE of at least 15 percent, said Wednesday the measure of profit dropped 57 basis points to 15.8 percent for the year ended Sept. 30.

Westpac raised its mortgage rates for investors in July amid pressure from the regulator to limit growth in such loans.

The bank expects a 2015 final dividend of 94 cents a share, in line with the average estimate of four analysts surveyed by Bloomberg. The lender is scheduled to report audited full-year earnings Nov. 2.

Westpac shares have dropped 8.2 percent this year, the second-best performer among the largest Australian banks. The benchmark S&P/ASX200 index has lost 5 percent this year.

Before it's here, it's on the Bloomberg Terminal.