Bendigo values loyal shareholders, to a degree

Nine months ago when financial markets were in the pits Bendigo and Adelaide Bank went looking for $75 million in capital that it planned to sell as converting preference shares.

Institutional investors would not deliver, at least on terms the bank would wear, so Bendigo bank turned to its retail shareholder base with a share purchase plan to raise the capital instead.

In more favourable conditions in the equity market Bendigo's board and management have chosen to follow the more typical route in the modern capital market and sell a large chunk of discounted shares to institutional investors.

The bank confirmed yesterday that it planned to sell $300 million in new shares at equal to 14 per cent of issued capital. The price of the new shares will be $6.75 and a discount of 17 per cent to the last price of the bank's stock.

The bank placed $127 million in new shares with institutional investors and will offer $173 million in new shares under an entitlement offer.

The new equity will lift the bank's tier one capital ratio by 1.2 percentage points to 8.63 per cent and the total capital ratio to 12.1 per cent.

The treatment of existing shareholders may prove an irritant for the bank, even though in some ways Bendigo is treating them better than any other large company raising capital in the present market.

It may be interesting to recall the findings of a survey of Bendigo shareholders, concerning shareholder views of the bank, commissioned in April 2007 in the context of the takeover bid from Bank of Queensland.

The survey, undertaken by Value Enhancement Management, found that 71 per cent of Bendigo Bank shareholders are also customers; that 39 per cent of shareholders owned their shares for more than 10 years, and a further 37 per cent of owned them for more than five years.

Qualitative findings from two years ago included "overwhelmingly strong support" by 96 per cent of shareholders, "for the Board and the direction it has taken the business over the past few years"; "more concern about the future of the Bank and the model it has followed to achieve growth than their personal short-term gain"; and an assessment by VEM that shareholders "placed a high value on the Bendigo Bank brand, the Community Bank model, customer focus and service levels, Bendigo's employees and its involvement with the broader community".

Those shareholders who stuck by Bendigo in spurning the BOQ bid (while also accepting the Bendigo takeover of Adelaide Bank four months later) and stumping up the capital when needed in late 2008 may be a somewhat disgruntled group this week.