AUSTRALIA’S BANKS HAVE PLENTY TO SPARE

Straight from the source

The latest market capitalisation league ladders that appeared in the weekend papers provide a stunning example of big bank power in Australia. Here's the top five:

BHP Billiton: $128 billion (excludes UK shares)
Westpac: $73.72 billion
Commonwealth Bank: $72.78 billion
National Australia Bank: $58.68 billion
ANZ: $52.99 billion

No other country in the world has four domestic banks in their top five most valuable companies and never before have our big four banks all been in the top five with market capitalisations each exceeding $50 billion.

Indeed, who would ever have thought that Australia would have four of the world's eight remaining AA-rated banks after the great credit crisis of 2008-09?

Given the staggering $18.5 billion in new capital raised by the Big Four over the past year, their combined market capitalisation of $258.17 billion is getting close to the $275 billion reached at the top of the boom, even though the All Ords is still 36 per cent below its record high of 6873 points on November 1, 2007.

One of the reasons for the huge market capitalisation figures is that big four investors are collectively sharing in $8.6 billion worth of paper gains on all this newly raised capital. However, the vast bulk of these gains have gone to institutional investors at the big end of town, rather than regular retail investors.

Here is a breakdown of the paper profits that institutional and retail investors in big four bank capital raisings have enjoyed over the past year:

Commonwealth Bank: raised $4.865 billion in total starting with a $2 billion institutional placement at $38 a share in August last year to fund the BankWest acquisition. Followed up in December 2008 with another $2 billion institutional placement at $26-a-share and then belatedly offered retail investors a $10,000 share purchase plan at $26 in February this year, although they missed out on the $1.13 fully franked interim dividend which went to the institutions. The SPP raised $865 million, so in total 162.8 million new shares were issued over the past year and at Friday's close of $47.02 they were worth $7.655 billion, suggesting a total paper profit of $2.79 billion. However, only $700 million or 25 per cent of this gain is attributable to retail investors.

ANZ: raised $4.7 billion in total starting with a $2.5 billion institutional placement at $14.40-a-share in June 2009 and was then swamped with $2.2 billion worth of applications for its $15,000 share purchase plan at the same price. Had proposed capping the SPP at $350 million but ended up accepting $1.85 billion of additional funds from its retail investors. Total paper profits based on Friday's close of $20.74 are $2.07 billion and retail investors are enjoying 46.8 per cent of them or $969 million.

National Australia Bank: raised $6 billion in total starting with a $3 billion placement in November 2008 at $20 a share and then a further $250 million through a $10,000 share purchase plan in December 2008 which was priced at $19.97 a share. Backed up with another $2 billion institutional placement at $21.50 a share in July 2009, accompanied by an SPP capped at $750 million. Based on Friday's close of $27.75 and assuming the current SPP is not expanded beyond $750 million, the total paper profits are $2.06 billion, but only $315.4 million or 15.3 per cent will go to retail investors. NAB is under pressure to follow ANZ's lead and not scale back the latest SPP which closes on Friday and is currently 29 per cent in the money.