National Australia Bank has launched a massive $5.5 billion capital raising to help it get the jump on regulators and allow it to push ahead with the public float of its troubled UK business.
The bank announced the move as it reported a 5.4 per cent increase in its first half cash profit to $3.32 billion.
Chief executive Andrew Thorburn said NAB would launch an initial public offering of its troubled Clydesdale Bank subsidiary, which has been a drag on its performance for years, by the end of 2015.
“It is a priority to exit this business, and we are today announcing our intention to pursue a demerger and IPO of the UK banking business,” he said on Thursday.
But before it can do that, UK regulators have told NAB it needs to shore up Clydesdale’s balance sheet to protect it against potential losses linked to past problems, including misconduct issues.
Clydesdale was hit with a record STG20.7 million ($A39.58 million) fine in April over its handling of complaints from customers who were mis-sold payment protection insurance.
So NAB is tapping shareholders for $5.5 billion through an entitlement issue to inject another STG1.7 billion ($A3.25 billion) into Clydesdale.
It will also use the raising to strengthen its own balance sheet ahead of a likely move from the Australian Prudential Regulation Authority to lift reserve capital requirements.
The capital raising, which is one of the biggest ever seen in Australia, will see NAB issue 194 million new shares, which is around eight per cent of its issued capital, at $28.50 each.
The offer price is 19 per cent below NAB’s closing price on Wednesday.
NAB shares are currently in a trading halt.
The size of the raising came as a surprise to analysts and market watchers.
“You’re talking about the entire amount of money that was raised in the Medibank Private float, it’s a huge raising,” IG strategist Evan Lucas said.
Lucas said NAB was unlikely to have trouble carrying out the raising, despite its size, though it would deliver a significant blow to its share price.
“In the longer term it’s probably responsible but in the short term it’ll be a market headache.”
The bank has also announced former federal Treasury secretary Ken Henry will succeed outgoing NAB chairman Michael Chaney, who will retire at the bank’s annual general meeting in December.
Meanwhile, NAB decided to keep its interim dividend flat at 99 cents, which is at the bottom of the range forecast by analysts.
* Cash profit of $3.32b, up 5.4pct from $3.15b in 2014/15
* Net profit of $3.44b, up 20pct from $2.86b
* Interim dividend of 99 cents, unchanged.
– AAP
