In a move to bolster capital, and ahead of its full year results in November, Westpac has announced a $3.5bn share offer and lifts its mortgage rate for existing owner occupied and investor mortgage borrowers. The company is in a trading halt until 19th October. They claim this will place their CET1 capital ratio in the top quartile of banks globally on a comparable basis.
As we predicted, banks need to bolster their capital, and will raise mortgage rates independent of moves in the RBA cash rate. We expect further rises across the industry, making mortgages more expensive to existing borrowers. We also expect intense competition for new owner occupied business, so special offers will also continue.
Looking at the details, Westpac has announced a $3.5bn share offer, to raise approximately $3.5billion of ordinary equity. The price of the offer has been set at $25.50 which is a discount of 13.1%.
Westpac’s shares have been placed in a trading halt to enable the institutional component of the Entitlement Offer to be completed, with trading expected to recommence on 19 October 2015.
The equity raised will add approximately 100 basis points to Westpac’s Common equity tier 1 (“CET1”) capital ratio and places Westpac ’s CET1 capital ratio within the top quartile of banks globally, with a CET1 capital ratio of over 14% on an internationally comparable basis. Capital raised responds to changes in mortgage risk weights that will increase the amount of capital required to be held against mortgages by more than 50%, with the increased regulatory requirement to be applied from 1 July 2016.
Westpac has also announced an increase in its variable home loan (owner occupied) and residential investment property loan rates by 20 basis points. The new rates take effect from 20 November 2015. It had previously lifted rates on investment loans by 27 basis points in September.
To support the offer, Westpac also announced its unaudited preliminary Full Year 2015 Result. Highlights of the unaudited preliminary result for Full Year 2015 compared to Full Year 2014 include:
- Statutory net profit of $8,012 million, up 6%
- Cash earnings of $7,820 million, up 3%
- Cash earnings per share of 249.5 cents, up 2%
- Cash return on equity of 15.8%, down 57 basis points
Westpac also expects to determine a 2015 final, fully franked dividend of 94 cents per share, up 2 cents on the 2014 Final Dividend. New shares issued under the Entitlement Offer are not entitled to the 2015 Final Dividend.
One thought on “Westpac Builds Capital Further; Lifts Mortgage Rates”