Retail capital flood for ANZ

ANZ confirmed the ready availability of capital for the largest companies, and especially banks, with the sale of $2.2 billion in new shares to 40 per cent of the bank's investor base.

The bank sold $2.5 billion in new shares to institutional investors six weeks ago and said then it would sell shares on similar terms to retail investors. At the time ANZ said it "reserved the right" to scale back applications where demand exceeded $350 million.

ANZ yesterday said it opted to accept every application, taking its capital raising to an aggregate $4.7 billion, or an increase of about one sixth in the bank's capital base since ANZ last produced financial statements in late April.

Macquarie Group took a similarly opportunistic approach a month ago, also opting to accept every application from retail investors to buy new shares at a deep discount. The group effectively doubled its capital raising by doing so.

The new share sale for ANZ (like Macquarie) increases the effect of the dilution in earnings but also bolsters core capital at a time that banks need it. The immediate effect of the share dilution is a reduction in earnings per share of around five per cent. ANZ's tier one capital increases to around 9.5 per cent on Goldman Sachs JB Were estimates.

In the case of ANZ the hugely successful capital raising will improve the bank's options in bidding for the Asian assets of Royal Bank of Scotland. ANZ noted in its media release yesterday that negotiations are "progressing but incomplete".

ANZ also stated in its media release that there was "no material change" in its guidance on bad debts from that published with its half-year profit.

One possible use of the additional capital mentioned by the bank was "possible repayment" of hybrid capital.

Macquarie and Suncorp have each bought hybrid capital or subordinated debt this year at discounts to face value.