Cba Shares Slump Follows $2 Billion Botch-up

The Age

Friday December 19, 2008

ERIC JOHNSTON

COMMONWEALTH Bank shares slumped 9per cent as they resumed trading a day after the bank botched a $2billion capital raising and was forced to reveal its outlook for lending losses.

It warned investors that provisions for bad debts could rise to as much as $2.5 billion, more than double last year, as credit conditions deteriorate.

CBA clarified its position after the surprise increase in lending losses was not disclosed to investors during the capital raising earlier this week.

The bank has accused its stockbroker, US giant Merrill Lynch, of leaving out the information as it placed the shares with institutional investors.

Merrill Lynch has denied responsibility for the blunder.

A second brokerage, UBS, arranged the $2 billion share sale, with the bulk of shares raised at $26 each. CBA shares closed yesterday $2.65 lower at $26.50.

Analysts yesterday set about cutting their earnings estimates on the bank by as much as 15 per cent as its exposure to failed companies such as ABC Learning and Allco Finance Group takes its toll.

Analysts and fund managers were scathing that the bank had sold shares to investors that were in the dark about its financial health. The affair has increased pressure on chief financial officer David Craig to step aside.

"Clients were selling stock during the course of the day to make room for their Commonwealth Bank allocation, so the company needed to come out with some disclosure a bit earlier than they did," one investment banker said.

Separately, CBA won approval from Treasurer Wayne Swan for its $2.1 billion acquisition of BankWest.

While the Australian Competition and Consumer Commission last week gave the green light to the deal, Mr Swan placed several conditions on it.

These include maintaining BankWest's head office and core functions in Perth. He also restricted the bank from closing any of its own or BankWest branches as a result of the acquisition.