Is this the start of a trend by our big banks to unload or sell down their carefully established wealth management empires?
Westpac’s (WBC) deal yesterday to sell around half its 59% stake in its fund manager arm, BT Investment Management (BTT), (raising an estimated $700 million) could be the way the big banks raise more capital to meet tougher demands from regulators for them to be stronger.
BT went into a trading halt yesterday to allow Westpac to start the sell down to the market, which will see around 55 million shares in the fund manager sold to top end investors, with another 27 million reserved for offer to shareholders in Westpac and BTT.
Westpac plans cut its holding in BTT to between 31% and 40%, from the current 59%.
Westpac’s chief financial officer Peter King said in yesterday’s statement the deal would allow the bank to “realise part of the investment in BT, increasing our capital ratios, while still maintaining a significant interest in BT."
The bank said the sale would add between 10 and 15 basis points – 0.10% to 0.15% to its Tier I common equity ratio. That was 8.76% at the end of the March half year, which was close to the bottom of the regulators preferred level which cuts off at 8.75%.
WBC 1Y – Westpac BT sell down a sign of things to come?
It is the second conscious move by Westpac to boost its balance sheet to meet demands that the big banks hold more capital from APRA and the RBA (and the expected recommendation from the forthcoming Murray Inquiry into Financial Services).
In its May interim profit announcement, Westpac said it would raise $2 billion from a partially underwritten dividend reinvestment plan.
That would take tier one capital to 9.3% and the sale of the BTT stake could lift that to 9.45%, before any retained earnings from the second half of the 2014-15 financial year.
The other three big banks – ANZ, Commonwealth and NAB – could look to follow by separating their wealth management arms from the groups and floating them off, or issuing capital to outside shareholders. The CBA owns Colonial, the ANZ has its business in house, while the NAB owns MLC.
The NAB is reported to be fielding offers for its wholly owned insurance arm (it mostly operates in life and home insurance). A sale will release capital for the bank, as will the decision to quit the UK (which was what the recent huge capital raising was aimed at).
The indicative price range for the share offer is $7.50 to $8.50 for each BTT share – representing a discount of between 4% and 14 % to Monday’s closing share price of $8.76.
Shares of Westpac rose 1.7% yesterday to $32.70. The bank’s shares are down more than 3% this year and close to 19% down since the peak on March 25 of $39.39.
