Westpac to raise $A3.5 billion in discounted rights offer

Westpac will raise the $3.5 billion through an entitlement offer, the latest in a series of share offers by Australian banks after the Australian Prudential Regulation Authority in July lifted the capital reserve requirements of the country’s top banks.

“It follows that with the unexpected increase in mortgage interest rates on owner occupier lending today, the probability of the RBA easing has risen again”, Mr Walters said.

The head of the consumer bank at Westpac George Frazis said raising interest rates was a “difficult decision and one that is not taken lightly”.

The shares will be priced at AU$25.50 each, implying a discount of 13.1 percent on the dividend adjusted theoretical ex-rights price.

The amount of capital that the banks need to hold against mortgages has increased by 50 per cent thanks to recent regulatory changes. 44 before being halted for the capital raising.

“As we have always said publicly, while Westpac is well placed to meet these changes, a significant increase in capital ultimately increases the cost of providing home loans to customers”.

In total, the big four banks have raised more than $20bn in 2015. “We acknowledge that it does impact customers, even in an environment where interest rates remain near historic lows”, Frazis said.

It was a volatile day of trade, with the banks under sharp focus following Westpac’s decision to raise its variable mortgage rate by 0.2 per cent.

“In our view, the announcement by a major bank of an out-of-cycle 20bp rate hike – for investor and owner-occupier loans – all but seals the deal for a November rate cut from the RBA”, Macquarie Securities economist James McIntyre said.

Westpac also said it would pay a fully franked dividend of 94 cents for the 2015 year, up 2 per cent on the previous year.

All of this comes at a time when a few economists say the housing market poses a recession risk.

Westpac, Commonwealth Bank and National Australia Bank didn’t pass on the May rate cut in full.

It joined its rivals earlier this year in lifting investor rates after a push by the banking regulator for banks to hold more capital to insulate them against possible losses.

Cash earnings, the measure more closely watched by analysts and which strips out volatile items, was an unaudited Aus$7.8 billion, a three percent increase from previous year.

Chief executive Brian Hartzer said the result was driven by “a solid operating performance, supported by strong gains in customer numbers”.