$1bn NAB raising despite turmoil

National Australia Bank’s leadership woes won’t deter the lender from shortly tapping investors for a new $1 billion hybrid issue.

National Australia Bank’s leadership woes won’t deter the lender from shortly tapping investors for a new $1 billion hybrid issue, although the turmoil will be re­flected in the pricing.

Sources told The Australian NAB had appointed six banks to manage the hybrid deal, which would be kicked off as early as Monday, depending on market conditions. Hybrid securities are often listed on the ASX and have characteristics of both shares and debt, and like bonds, they pay interest at a fixed or floating rate.

A NAB spokesman declined to comment on the potential transaction.

The embattled bank this week axed its chief executive Andrew Thorburn and announced that chairman Ken Henry would step down after the appointment of a new CEO. That followed criticism of the pair in the Hayne royal commission’s final report over the bank’s many governance and mis-selling failures.

It’s understood NAB is finalising how to price the hybrid but is taking into account that investors would be unsettled by this month’s events. For that reason the rate being paid on the hybrid is said to be in the order of 4 per cent above the bank bill swap rate, and higher than many similarly traded big bank hybrid securities.

The long-dated deal is targeting both new and existing investors.

Analysts are closely watching NAB’s capital position after it delayed the planned separation of its MLC wealth division until 2020, and as it moves toward meeting the prudential regulator’s incoming “unquestionably strong” requirements.

In NAB’s first-quarter trading update, which was brought forward to Thursday because of the leadership changes, the bank said its common equity tier one (CET1) ratio stood at 10 per cent at December 31. That was slightly down on the previous three months at 10.2 per cent, due to the payment of a dividend.

Under the Australian Prudential Regulation Authority’s new capital rules the big four banks must have CET1 capital ratios of at least 10.5 per cent, to meet the “unquestionably strong” benchmark, by January 2020.

“In the context of challenging operating conditions, NAB delivered a respectable first-quarter performance,” Macquarie banking analyst Victor German said, while highlighting the capital position and dividend as concerns.

“NAB’s weaker capital position relative to peers, in our view, is likely to result in a need for a dividend cut and ongoing dividend reinvestment programs.”