ANZ and NAB wary of equity market

That Commonwealth Bank managed to agree terms for the purchase of Bank of Western Australia at a 17 per cent discount to net assets is one of the greatest bank robberies in history, even considering the incredibly distressed state of global credit markets and the fragile funding position of HBOS as vendor.

Obviously there were no other bidders and in the end HBOS was a desperate vendor.

So why weren't ANZ and National Australia Bank more serious about this opportunity for scale, since both, so the story goes, are trying to work out terms to buy the banking business of Suncorp - a decidedly inferior business?

One explanation is that HBOS was interested only in an all-cash offer.

Equally obviously, any buyer of BankWest needs to raise the additional capital by selling new shares (since no bank, by any stretch of the imagination, has any surplus capital at the moment, whatever the assertions by HBOS and CBA yesterday to the contrary).

So the one take away of the CBA agreement to buy BankWest may be that no other bank could come up with $2.1 billion in cash to pay for this extremely cheap banking franchise.

That is, neither ANZ nor National Australia Bank could credibly tap the equity capital market for $2 billion or more in fresh funding.

This is partly a function of relative price to earnings ratios that in turn are partly a function of the actual reported losses from ANZ and especially NAB from their own adventures in toxic assets (with NAB's AA- minus credit rating already under pressure).