ANZ completes $2.5bn share placement

ANZ Bank shares slumped more than 8 per cent as investors reacted savagely to the lender’s $3 billion capital raising and soft earnings update, wiping $7.8 billion from its market value.

Emerging from a trading halt after raising $2.5bn from institutional investors, ANZ shares dived 8.5 per cent to $29.80, its biggest fall since the global financial crisis and the bank’s lowest price since February last year.

Rivals Commonwealth Bank and Westpac fell 2 per cent, while National Australia Bank declined 1.8 per cent.

“ANZ’s trading update and equity raising highlight downside risk to consensus earnings per share estimates from revenue headwinds, higher loan losses and more onerous capital requirements. We also think the stock should de-rate,” Morgan Stanley analyst Richard Wiles told clients, retaining his “underweight” position on the stock.

Despite mixed demand, ANZ (ANZ) confirmed it had raised $2.5bn through the underwritten institutional placement at $30.95 per share, the bottom of its range and a small 5 per cent discount to the stock’s prior last trading price.

A further $500 million will now be sought from retail shareholders via a share purchase plan, which is not underwritten.

The sell-off of the banks came as brokers downgraded ANZ, with UBS cutting its 2016 earnings per share forecast by 4 per cent driven largely by the “normalisation” of losses from bad debts amid ongoing subdued economic conditions.

Confirming the banks’ period of record low losses from soured loans had ended, ANZ yesterday pre-released a weaker than expected $1.73bn third-quarter cash profit weighed down by a spike in bad debts to $367m, or 25 basis points of gross loans.

“While much of the dilutive impact of the (equity) raising should be offset by higher returns on capital the biggest driver of EPS downgrades is a more rapid assumption of normalisation in bad and doubtful debt (BDD) charges,” said UBS analyst Jonathan Mott.

“We believe investors are very focused on any evidence of BDD normalisation given ongoing signs of economic weakness, the ‘capex cliff’ and the higher arrears levels seen in (this week’s) Genworth Mortgage Insurance result.”

ANZ’s equity raising and soft trading update have increased expectations CBA could also pull the trigger on a capital raising at its full-year result next week.

It comes after the banking regulator last month confirmed that the big four would have to inject billions of dollars into their mortgage books and boost overall capital levels to “unquestionably strong” levels.

“All eyes turn to CBA next Wednesday with an estimated ‘known’ capital shortfall of about $4.5bn. While we could feasibly see a period of rolling dividend reinvestment plans we consider a larger raising to be defensible and ultimately more prudent,” said Credit Suisse analysts.