Westpac Retail Share Offer
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The Westpac retail share offer opened on 5 January 2009 and closes for existing eligible shareholders on 30 January 2009. The Westpac offer will raise approximately $500 million from retail investors and will boost the banks capital levels.
The retail offer supplements the recent $2.5 billion institutional share placement that boosted Westpac’s tier one capital levels to in excess of 8%.
Westpac are offering retail investors shares at $16 with the option to obtain them lower should the share price fall below $16. Westpac will determine the share price of the offer based on the daily volume weighted average of the share price of the 5 trading days up to and including the 30 January 2009. Thus shareholders will pay $16 at the most.
Shareholders have been offered to take up parcels of $1000, $2500, $5000, $7500 or $10,000. Shares will be alloted on 11 February.
Westpac have attached one proviso to the offer that if in excess od $500 million is subscribed for in the offer they reserve the right to scale back applications.
The offer will dilute the earnings per share for 2009 by several percent but will not have any impact on the Westpac dividend unless Westpac change the payout ratio. This would be very unlikely and would result in a heavy sharemarket sell-off should such an action occur.
2008 Bank Consolidation 2009 Non-Bank Oblivion
2008 was an amazing year in hindsight. We saw massive consolidation across the global economy particularly in the once dominant banking sector and perhaps we have or are experiencing the worst financial crisis since the great depression.
Only time will tell on that last one but for Australian banks it was clearly a year of consolidation and a period that has once again tipped the weight in favour of the big four banks Commonwealth Bank, ANZ Bank, National Australia Bank and Westpac.
In fact Westpac was the big winner of the year, now Australia’s highest capitalised bank after their successful takeover of former No 5 St George Bank.
Commonwealth Bank also picked up a few through the year with the latest deal the Wizard Home Loans purchase, they also bought 33% of Aussie Home Loans and swallowed Bankwest.
ANZ Bank consolidated it’s position with new CEO Mike Smith re-focusing the bank on tigher fiscal discipline after early financial setbacks through poor lending practices. ANZ also pressed on with it’s focus on Asia as the future development pathway of the bank.
The National Australia Bank did not sit on it’s hands as it consolidated it’s reputation and focused once again on core business in the light of the continuing deterioration in credit markets.
So what’s ahead for 2009, clearly with the crippled financial markets for smaller non-bank lenders further consolidation with occur. It is also fair to say that the regional banks Suncorp, Bendigo Bank and Bank of Queensland are likely to merge or will be swallowed by the big banks.
2009 will also likely see the death of the non-bank lender. These have been virtually damaged beyond repair in 2008 but will disappear or be bought for a pittance.
One last statistic to leave you with, in 2007 the big four banks had 45% of the mortgage market, at the end of November 2008 it was almost 90%. Don’t expect bank margins to reduce anytime soon.
Australian Banks interest rate margins expand
With RBA interest rates now at 4.25%, the same rate that was in place in 2002 it is easier to make an assessment of the margins being charged by the Australian banks.
In 2002 the average standard variable interest rate offered by the big four banks was 6.07%. The current average standard variable rate is 6.82%, an increase of 0.75% from the levels of 2002.
The banks will put this down to the global financial crisis and while funding costs have indeed increased it also reflects an amount of margin creep.
It is estimated that about 90% of all lending is currently being done through the big banks while has heavily impacted the smaller lenders and the lack of funding options has rendered the smaller lenders to be unable to compete in the current environment.
Hence these small lenders have had to increase rates as they are unable to source funds as cheaply as the big banks. This has impaired the local lending market and once again given the banks the upper hand once again against the consumer.
Westpac reveal rising bad debts at AGM
The Westpac AGM through the week revealed the current progress of Australia’s largest bank in the face of the current global financial crisis.
Chairman Bill Evans revealed that Westpac will have a challenging year ahead where bad debts are set to rise from current levels. Westpac has provisioned $1 billion for bad debts but it was revealed this was certain to rise.
Westpac is arguably the least exposed of the Australian banks and is best placed to deal with any ongoing bad debts but is far from immune. The bank revealed it would cut back lending to already leveraged customers and would carefully consider all lending practices.
Gail Kennedy the CEO of Westpac revealed impairment charges to average loans had risen by 12 basis points to 31 basis points for fiscal 2008.
Westpac recently increased it’s tier one capital to above 8% with a $2.5 billion raising.
It was also revealed that once the intergration of the St George merger occurs the cost to income ratio will drop to below 40%. This is a traditional ratio for an Australian top tier bank.
Macquarie Bank follow ANZ & Westpac in bonds issue
Macquarie Bank became the third major Australian bank to issue bonds priced ar US$1.7 billion in the US Bond market as it’s rivals secured funding sources.
ANZ Bank earlier in the week issued bonds of US$1.75 billion, while Westpac followed shortly behind with a US$1.5 billion issue.
Westpac shares sink below retail offer
As part of Westpac’s $2.5 billion capital raising during the week the company announced a retail share offer to allow existing retail shareholders to subscribe for additional shares in the company.
On Friday the Westpac share price closed at $16.03 after hitting a low of $15.88 on the day as the stock fell 52c. The fall will put further pressure on the retail offer to succeed as other stocks such as Incitec recently announced a heavily undersubscribed retail offer on a similar retail shareholder raising.
Shares in Westpac are likely to slip further as the market continues to adjust to the faltering world economy and the continual bad news each day.
Shareholders no doubt consider why they should invest today when they can buy stocks cheaper tomorrow.
Westpac tap market for $2.5 billion
Westpac have announced plans to raise $2.5 billion to increase it’s capital amid worsening global conditions.
The plans were unveiled along with an increase in debt provisioning and a one-off $500 million adjustment regarding it’s acquisition of St George.
Westpac’s placement has been fully underwritten by JPMorgan Australia, UBS, and Morgan Stanley Australia Securities and includes a $500 million retail component that will be made available to shareholders via a share purchase plan.
Wes
Westpac to cut credit card rates
Westpac has finally bowed to government and consumer pressure announcing plans to cut their interest rate of their credit cards.
Westpac cut their lowest credit card rate by 0.65% to 11.99% while slashing rates on other credit cards such as the 1.25% reduction to their Virgin Credit Card
The cuts will take effect from 15 December 2008.
Big Australian banks create $2 billion car fund
The big Australian banks Commonwealth Bank, ANZ Bank, Westpac & the National Australia Bank will setup a special fund to provide financial support to the local car industry.
The domestic car financing market has been hit hard recently by the withdrawal of major car financiers including GE Money which has forced a number of businesses to consider bankruptcy.
The announcement by the treasurer Wayne Swan today revealed the $2 billion trust will provide liquidity to car dealers through securing eligible loans. The fund will commence on 1 January 2009 and will be secured by the government for 12 months.
St George cut variable rates by 0.85%
St George Bank today announced plans to cut their standard variable home loan by 0.85% to 6.89%, the rate change takes effect from 8 December 2008.
St George became the latest bank to fail to pass on the full 100 basis point cut made by the Reserve Bank yesterday. Only NAB and the Commonwealth Bank passed on the full rate cut, Westpac and ANZ passed on 0.80% and 0.83% respectively.