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UPDATE 3-CBA to raise $3.7 bln as Australia's "Big Four" search for cash

Published 12/08/2015, 05:01 pm
© Reuters.  UPDATE 3-CBA to raise $3.7 bln as Australia's "Big Four" search for cash

* 1-for-23 rights issue at 12.9 pct discount to Tuesday's close

* Annual profit of A$9.14 bln meets expectations

* A$17 bln raised by Australia's major banks since May

* "Big Four" will need A$20 bln more over 2-3 yrs - analysts (Adds analysis on capital ratios, quotes)

By Swati Pandey

SYDNEY, Aug 12 (Reuters) - Commonwealth Bank of Australia CBA.AX unveiled a A$5 billion ($3.65 billion) rights issue and another record profit on Wednesday, completing a round of fundraising by Australia's "Big Four" lenders designed to strengthen their finances.

Australia's major banks have now raised A$17 billion since May but analysts said another A$20 billion would be needed over the next 2-3 years to bring their capital ratios in line with international peers. ID:nL4N0ZT05N

Most of the extra cash is expected to be generated through dividend re-investment plans, cost cutting and asset sales to make the banks among the safest in the world.

"Right now, the sector is still A$20 billion short," CLSA banking analyst Brian Johnson said.

Investors have sold off bank stocks this year after regulators demanded the major lenders set aside bigger cash buffers against their mortgage books, a key source of revenue, amid fears of a house price bubble. ID:nL3N0ZZ0EV

CBA announced a fully underwritten 1-for-23 rights issue at A$71.50 a share, a 12.9 percent discount to Tuesday's close.

Australia's No. 2 lender by assets will issue about 71 million new shares, lifting its Tier-1 ratio to 14.3 per cent, the highest among its domestic peers. That compares with 14.4 percent at UBS UBSG.VX , 12.3 percent at Royal Bank of Scotland RBS.L and 13.5 percent at Lloyds LLOY.L .

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"With this additional capital, we will have more capital than all but two of the globally systematically important banks. So clearly, an extremely strong capital position going forward," CEO Ian Narev said at an earnings conference.

Earlier this month, ANZ Banking Group ANZ.AX tapped investors with a A$3 billion share placement while Westpac Banking Corp WBC.AX raised A$1.25 billion through a hybrid issue. National Australia Bank NAB.AX did a A$5.5 billion rights issue in May.

While CBA is leading the pack in Australia, some of its peers still have a way to go to meet regulators' demands for "unquestionably strong" balance sheets. With bad debt levels creeping up and further regulatory pressure likely over the next year, analysts say the search for more capital is far from over.

"If ANZ can sell some of the assets that it is trying to sell they should be fine," Bell Potter analyst TS Lim said, adding the other banks could use dividend reinvestment plans to plug the gap.

ANZ is expected to launch a formal process this week to sell its 39 percent stake in Indonesia's Panin Bank, hoping to raise A$1 billion while it is in the final stages of selling its car dealer finance business. ID:nL3N10L05E

RECORD PROFITS

CBA lifted its full-year cash profit by 5 percent to $A9.14 billion, a sixth consecutive record, compared with A$8.68 billion a year ago and a A$9.15 billion estimate from six analysts polled by Reuters.

Narev said the need to hold more cash in reserve would not affect CBA's dividend payments, which are among the highest in the Asia-Pacific region. CBA's total annual dividend rose 5 percent to A$4.20.

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Net interest margin, a core measure of profitability, fell 5 basis points while expenses grew 5 percent. Bad debt charges climbed 4 percent.

NAB posted 9 percent growth in third-quarter unaudited cash profit while ANZ flagged a spike in bad debts in its brief update last week. ID:nL3N10I021 ID:nL3N10K0H1

CBA shares will remain on trading halt this week. They are down about 4 percent so far this year while the broader S&P/ASX200 index .AXJO has gained 1 percent, reflecting worries that the need to stockpile more cash could eat into shareholder returns.

Australian bank shares have fallen 14-21 percent from their 2015 highs.

($1 = 1.3693 Australian dollars) (Editing by Stephen Coates)

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