Has NAB nabbed top spot for good in Austraila?

Like a thief in the night came National Australia Bank to snare the top spot on the rungs of Australia’s banking ladder. And with growing fears of a recession plaguing banks down under, a USD2 billion cash injection could come as a shock. But the question is why does NAB have an extra AUD3 billion floating around in its coffers? The bank undertook a significant capital raising through the sale of its shares to institutional and retail investors, according to UBS analyst Jonathan Mott. Back in November, NAB announced both the institutional placement and retail share purchase plan. Mott said the bank raised capital in order “to strengthen its balance sheet and to finance organic growth.” But is it too little, too late for NAB, with local banks like Macquarie and ANZ already being slammed by the credit crunch? It seems the NAB’s timely capital raising efforts have given the bank the highest capital ratio of all the lenders down under, meaning it is well on its way to becoming the top dog in Australian banking. Mott estimates a “Tier 1 ratio of 8.13 percent for the 2009 financial year, which should place NAB towards the top end of peers. It is now ahead of its peers in terms of capital flexibility.” And with NAB scoring the first-mover’s advantage over its competition, it’s no surprise that the bank’s deputy CEO, Michael Ullmer is all smiles. “The group completed the placement before any other banks embarked on capital management initiatives,” he said.

Capital redux
The bank’s timely decision to raise capital may prove to be a stroke of genius for NAB in the long run, but the plan seemed to be off to a shaky start at first. NAB initially sought to pump USD1.4 billion back into the bank via a private placement with institutional investors, but the issue was subsequently boosted after it was over-subscribed, according to the Herald Sun newspaper. The institutional placement has since “been bumped up to AUD3 billion, while the retail share purchase plan has been capped at AUD250 million,” said Mott. So will this be enough to save NAB from an impending recession down under? If its high capital ratio is anything to go by, NAB should be able to weather the financial storm, despite the recent fiscal disasters at Macquarie, Babcock & Brown and ANZ. And Mott said that the USD2 billion capital raising “added USD1 billion in additional capital to our forecasts.” Despite its USD2 billion war chest, NAB could be faced with some significant obstacles before it gets to the top including “corporate downgrades, stronger non-performing loans, increased write-offs and the restructuring of provisions,” said Mott. It seems NAB will have to make some room at the top of the banking tree with both Westpac and the Commonwealth Bank looking at ways to shore up their capital positions before 2009 with similar capital raisings, according to the Herald Sun.

Murder she underwrote
Banking may have nothing to do with the television series Murder She Wrote, but what is going on with NAB’s underwriting remains a mystery. So what has happened to the bank’s underwriting plans for 2009 since the announcement? The announcement managed to “bring forward the DRP underwriting, which was flagged by NAB in the 2008 financial year for the second half of 2008 and the first half of 2009,” said Mott. But the plot has thickened further with the bank refusing to “rule out underwriting estimated dividends for the first half of 2009 and the second half of 2009,” added Mott.