Share sales in Australia expected to help banks

National Australia Bank is raising up to 3 billion Australian dollars in a share placement to strengthen its balance sheet, prompting analysts to predict that other lenders will follow suit as bad debts increase.
NAB, the biggest Australian bank, initially said in a statement Monday that it intended to raise 2 billion dollars, or $1.4 billion, from selling new shares, but later announced that it had increased the size of the placement because of strong demand.
"The size of this raise comes as a surprise," because "management has been saying they think they are O.K. on capital," said Jarrod Martin, an analyst at ABN AMRO. "Clearly you don't want to be in a capital deficit position in the environment where you have got increasing bad debts going forward."
Last month, NAB reported a quadrupling in bad debt charges and a 28 percent drop in second-half cash profit. Rival banks also saw bad debts rising.

Australian banks have escaped the worst of the subprime mortgage fallout that has battered their U.S. and European peers, but with growing signs of a global recession, they face increasing bad debts and will have to raise more capital, analysts said.NAB offered the new shares at 20 dollars each, a near 10 percent discount to its closing price of 22.15 dollars Friday, said a person with knowledge of the transaction, who asked for anonymity because he was not authorized to speak to the news media.
"We think Westpac and ANZ will come to the market at some point in the next 3 to 6 months," the person said. "We have a general view that effectively all four majors will at some point try to tap the market."
Some analysts said the second-ranked Commonwealth Bank, which is paying $1.4 billion for HBOS's BankWest unit, would be next in line to raise capital. CBA sold $1.3 billion of new shares last month to finance the acquisition.
Recent corporate collapses in Australia, like those of Allco Finance Group and the childcare operator ABC Learning Centres, have added to banks' financing pressures.
On Monday the Australian central bank cut its forecasts for economic growth for the next two years, saying it would review interest rates in the months ahead with the aim of avoiding an even sharper slowdown in domestic demand.

Proceeds from the share sale would take NAB's Tier-1 capital adequacy ratio - the core measure of a bank's capital strength used by regulatory agencies - to about 8 percent, nearing ANZ's benchmark 8.1 percent.
The placement would be followed by an offer to retail shareholders to participate in a non-underwritten share purchase plan for up to 10,000 Australian dollars' worth of NAB ordinary shares, the bank said.
Trade in NAB shares was suspended on Monday pending the share sale announcement, but an index of Australian bank shares fell 1.4 percent, underperforming a 1.4 percent gain on the main S&P/ASX 200 index. "That tells you something in itself, that the sector faces significant headwinds," Martin said.
The investment firm Babcock & Brown said on Monday that it had sold its rights to manage the Babcock Capital fund, a move consistent with its narrowing the focus of the group's activities. Its shares dropped by more than a quarter.
In its statement, NAB said that it was raising capital in order to strengthen its balance sheet and take advantage of organic growth opportunities, citing more favorable market conditions, which would be equivalent to expected shortfalls in its dividend reinvestment plan.

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