NATIONAL Australia Bank is expected to be followed by at least one of its rivals in directly tapping shareholders for funds to strengthen their balance sheets, after it successfully raised $3 billion of new capital yesterday - $1 billion more than it originally thought possible.
In a sign that a floor is beginning to be put under the recent falls in financial markets, NAB surprised even itself when investors snapped up an initial offering priced at $20 a share and pushed the underwriters of the issue for an additional amount of 50 per cent.
Having waited for the impact of the latest drop in global interest rates - including last week's Reserve Bank cut of 75 basis points - to flow through to the ASX, the bank had to increase the size of the fund-raising exercise from $2 billion after strong demand from institutions.
It also meant that NAB was able to go to market at a small discount of about 10 per cent to the $22.15 price at which its stock was placed in a trading halt yesterday. The shares will resume trading this morning.
The push for additional stock was led by fund managers who are flush with cash, having pulled out of the market in recent months as values plummeted and then decided to sit on the sidelines to wait for share prices to start hitting the bottom.
The success of the issue - backed by Goldman Sachs JBWere, Merrill Lynch and UBS - has allowed NAB to pull its early proposal to raise extra capital from a more time-consuming, and share price-dampening, underwriting of its dividend reinvestment plan.
Yesterday's move prompted speculation that NAB would renew its interest in buying the banking arm of the troubled Suncorp financial services group. But the bank's deputy chief executive, Michael Ullmer, ruled out such a move, saying it was concentrating on organic growth.
Market observers said more likely were similar fund-raising moves by NAB's main competitors, ANZ, Westpac and Commonwealth, as they seek to bolster their financial positions in the wake of increasing bad debts as the economy turns down, while at the same time looking at potential acquisitions such as Suncorp.
ANZ is considered the most likely to follow suit, as it looks for about $1 billion from its own dividend reinvestment underwriting plan.
With NAB looking to push the best measure of a bank's capital strength - its Tier One ratio - up by 0.7 per cent to over 8 per cent, ANZ is at present sitting at 7.7 per cent. However, ANZ was maintaining its existing stance yesterday. "There is nothing further planned at this stage," a spokeswoman said.
Commonwealth Bank, which is separately raising $2 billion from institutional shareholders to pay for its planned acquisition of BankWest, said it was "comfortable" with its current Tier One capital position, which stands at 7.6 per cent, the lowest of the Big Four banks.
CommBank will outline its capital position on Thursday during a trading update covering its first quarter performance of its 2009 financial year.
CommBank's shares slipped 5 per cent - $2.07 - to $38 in response to NAB's move.
