ANZ Bank (ANZ)

By Jason Fittler,

ANZ announced it is undertaking a fixed $2.5bn institutional share placement, which will be followed by a $500m Share Purchase Plan for retail investors.

This placement is designed to raise common equity to offset APRA's recent announcement to increase mortgage risk weights to an average of at least 25% as an interim measure. The placement will be priced via a book build above a $30.95 underwritten floor.

While much of the dilutive impact of the raising should be offset by higher returns on Capital (paying down expensive debt), the biggest driver of earning per share downgrades is a more rapid assumption of normalisation in bad and doubtful debts charges.

We continue to believe the market will expect the banks common equity tier 1 capital ratios to settle above 10% given the ongoing drift higher of global bank capital ratios and that the market would consider this level "unquestionably strong".

Since the GFC Australian banks have continued to strengthen their positions against failure and with these measures now in place, it is hard to see them fail.

The question is can they continue to produce the profits and more importantly the yields that investors are chasing.

At the current price levels, ANZ is looking attractive for the long-term investor. However, caution is advised as the other major banks at yet to announce results.

ANZ fell 6% on the back on these announcements and are currently trading around $30, which is below the book build floor making them look like reasonable value at these levels.

Our valuation has been reduced to $33 down from $35.

For more information about ANZ Bank (ANZ) please contact us on 07 4771 4577.