Shares in Commonwealth Bank of Australia (CBA) have fallen to a three-and-a-half year low on expectations that it may undertake another capital raising in the near future.
The fall comes a day before the bank's annual general meeting and first quarter update in Melbourne and follows broker downgrades amid weakness across the banking sector.
CBA shares finished 51 cents or 1.4%, lower at $35.10 - its lowest level since April 2005.
Expectations of a capital raising was holding down the stock, CMC Markets senior dealer Dominic Vaughan said today.
"It's probably right across the share price,'' he said.
CBA raised $2 billion through a share placement when it acquired HBOS Australia's BankWest and St Andrews Australia divisions for $2.1 billion last month.
A CBA spokesperson said it would be inappropriate to comment ahead of its first quarter trading update tomorrow following its annual general meeting.
Mr Vaughan said fund managers were still looking for value on capital raisings, making more bank raisings possible in the five weeks until Christmas.
"If it is trading at a deep enough discount a lot of the funds managers will be quite happy to pick those raisings up.''
Some analysts had been a little behind the curve on updating their quarterly valuations for bank stocks, Mr Vaughan said.
"I think the speed of the decline in the Australian economy has probably shocked a few people, and the banks are catching up and we're running into a fairly heavy economic environment over the next six months to a year and there's been a re-weighting of these financial sector stocks.''
CBA has suffered downgrades from analysts over recent weeks, with Citigroup and Deutsche Bank slapping sell recommendations on the stock on Monday.
Deutsche Bank analyst Victor German said it was highly likely CBA would look to raise capital before the bank reports its first half fiscal 2009 result in February.
"They clearly need to boost their capital ratio relative to their peers,'' he said.
At 7.6%, CBA's tier 1 capital ratio is trailing that of its peers who are targeting an 8% benchmark, with NAB moving above 8% and ANZ moving to 8.09% after it underwrites its dividend reinvestment plan.
A bank's tier 1 capital ratio affects its credit rating, and ability to borrow and pay dividends.
Minimum levels of tier 1 capital are set by the Australian Prudential Regulation Authority to protect against unanticipated losses and ensure banks' safety.
CBA's exposure to troubled companies including ABC Learning Centres and Centro Properties Group is also weighing on investors' minds.
"CBA is viewed as being in the frontline,'' Austock Securities senior client adviser Michael Heffernan said of the exposure to ABC Learning.
He said CBA was previously viewed as better than its competitors and with fewer exposures to problem companies.
Investors switched out of CBA and into NAB following NAB's $3 billion institutional capital raising on Monday, Mr Vaughan said.
NAB resumed trading at $20 a share yesterday after coming out of a trading halt when it offered the stock at that price to institutions - a 9.7% discount to Friday's share closing price.
Shares in NAB today closed 22 cents, or 1.1%, weaker at $19.93, while ANZ backtracked 28 cents or 1.8%, to $15.40.
Mr Vaughan and Mr Heffernan said bank valuations were still very attractive.
ANZ has no capital raisings planned, a spokesman said this week.
AAP
