Bendigo and Adelaide Bank has reacted to earnings weakness, rising funding costs and increasing and debt problems by looking to raise $300 million in new capital from shareholders and from the heavy end of the investment market.
The company said yesterday it is proposing to issue shares at $6.75 each, down 17% on the last price of $8.13.
The news came after the bank revealed generally poor earnings figures for 2008-09, even though Bendigo had last issued a restated guidance only a week ago with news of higher bad debt provisions.
The bank yesterday revealed a 57.7% plunge in 2008-09 net profit which saw it chop final dividend by more than 50%, from 37 cents a share to 22 cents.
It had paid a steady 23 cents a share interim.
Earnings were down for the first half, but the bank suffered from higher provisions and funding costs in the second half; even though it was able top attract more deposits from customers.
Bendigo reported net profit of $83.8 million after one off items; net earnings before those were $173.2 million, down 26% from the 2008 figure.
Cash earnings fell to just over $182 million for the year, from $239 million in 2007-08, a good indication of the problems the bank was hit with during the year. Cash earnings more than halved in the final six months to last June to $69.9 million.
Directors said yesterday
"The reduced profit was attributable to a slowing economy and global recession, an unprecedented drop in official cash rates and increased funding costs.
"However, in a sign that the Retail Bank, including the Community Bank network, remains strong, retail deposits increased by 20.8 per cent to more than $28.5 billion.
"This increase in retail deposits has allowed the bank to reduce its reliance on wholesale funding, which remains expensive and difficult to access."
"The 2008/09 financial year presented unprecedented challenges for all Australian banks, with everything from a deteriorating credit cycle and rapid fall in official cash rates to reduced wholesale funding options impacting significantly on financial results.
"Notwithstanding this, the decisive action taken by the bank to reshape its balance sheet and reduce reliance on wholesale funding will ensure the business is well placed for the future," the bank said in its report.
On Tuesday of last week, Bendigo warned that a $20.2 million increase in specific and collective provisions for the failed tax promoter Great Southern loan portfolio would cut full-year cash earnings by eight cents a share.
Bendigo said yesterday that it would seek $173 million from retail and institutional shareholders in a rights issue to shareholders, and place another $127 million of ordinary shares with selected sophisticated and institutional investors.
Bendigo said the $300 million in new equity sought would lift its tier 1 capital ratio to 8.63% on a pro forma basis, and increase total capital to 12.11%.
The bank said cash earnings per share were 62.9 cents a share, down 43.4% on 2007-08.
The company is issuing 14% of its present capital in the two issues, a sign that it needs to raise as much new capital as possible and quickly, without having to go to shareholders for approval to issue more than 15%.
The key financial regulator, APRA (The Australian Prudential Regulation Authority) has been keeping a close eye on Bendigo this year.
It forced the bank to restate the way it was retreating some of its non performing loans as at December 31.
The figures supplied to the ASX in May for the March 31 period contained the restated December 31 figures with the following notation:
"Also attached is restated information for the December 2008 quarter in accordance with Prudential Standard APS 330.
"These restatements have been made after consultation with the relevant regulators, and align this disclosure with that made to APRA under APS 220.
"Movements in arrears and provisions for the March quarter are in line with forecasts previously provided to the market."
There is one main regulator that is relevant and that is APRA and the pressure came from it.
APRA also forced the bank to abort a planned takeover with an associate, Adelaide Managed Funds in April.
"Adelaide Managed Funds Limited (Adelaide Managed Funds), as responsible entity of the Adelaide Managed Funds Asset Backed Yield Trust (AYT or the Fund), today confirmed that the proposal from Bendigo and Adelaide Bank Limited (BEN) to acquire all of the Units in AYT (the Proposal) will not proceed.
"Adelaide Managed Funds has received formal notification from BEN that the Australian Prudential Regulation Authority (APRA) will not approve the Proposal as it does not, in APRA’s view, comply with BEN’s prudential requirements."
Adelaide Managed Funds, a wholly owned subsidiary of Bendigo and Adelaide Bank, is the responsible entity of the Adelaide Managed Funds Asset Backed Yield Trust.
