Think Big, Keep Pace, Seek $1b

A CAPITAL raising amounting to as much as $1 billion has been announced by the Commonwealth Bank in a move aimed at bolstering its balance sheet and keeping pace with its competitors.

Retail and institutional shareholders will be given the chance to take part in a share purchase plan SPP) that the bank plans to unveil at its next set of half-year results in February.

Yesterday's announcement on topping up its capital levels was in response to the market fund-raising exercises by other members of the "Big Four", primarily Westpac's $2.5 billion institutional share placement this week and a similar move by National Australia Bank a month ago.

The Commonwealth gave few details yesterday of the size or the limits on the individual take-up of new shares.

It emphasised the offer would be open to all shareholders rather than the specific stock issues reserved for retail investors by Westpac and NAB.

In addition to their institutional placements, which raised $5.5 billion from mainly domestic fund managers, Westpac is to seek $500 million from smaller holders through its follow-on SPP, while NAB is pitching for $250 million.

Both have limited those offerings to $10,000 of new shares to their retail investors.

The Commonwealth's share offer may also be accompanied by the underwriting of its first-half dividend reinvestment plan as part of efforts to boost its level of Tier One capital, given that it now lags the rivals - Westpac, NAB and ANZ now sit well above 8 per cent.

In contrast, the country's largest bank has 7.5 per cent of the top-ranking slice of capital.

Analysts expect it now to tap its investors for further funds as it deals with rising bad debt charges, the need to have more funding in place to deal with the fallout from the global financial crisis and any further acquisition opportunities such as its recent purchase of BankWest.

The prospect of at least one specific cash-raising move by the Commonwealth came after it disclosed it will harvest $750 million through the issue of stock to the investment bank Merrill Lynch to pay down a long-standing parcel of hybrid securities called PERLS II.

The bank has decided to cash them out rather than continue rolling them over and pay interest on them or let them convert into ordinary shares. Commonwealth's shares dropped $1.50 to $28.50, their lowest level in five years, in response.

Yesterday's measures came as trading resumed in Westpac's shares. Suspended at $17.88 while the institutional book build of new stock took place, Westpac closed at a slight premium to the $16 placement price, falling $1.51 - or 8.45 per cent - to $16.37.