Westpac Bold Move: Westpac Banking Corp, the third-largest bank in Australia, has unveiled plans to raise a significant A$750 million ($488.1 million) through an Additional Tier 1 (AT1) capital transaction. This move comes as part of the bank’s strategic efforts to strengthen its capital position. Notably, investors have already shown substantial interest, with bids reaching A$2.35 billion at the lower end of the indicative margin range.
The AT1 bonds will be issued at A$100 each, and potential investors have been informed that the interest margin will fall within the range of 3.10% to 3.3%, according to a prior statement from Westpac. An intriguing aspect of this capital-raising initiative is that investors who participated in an earlier series of Westpac AT1 bonds will have the opportunity to reinvest in the new bonds.
The final determination of the margin will be established through the bookbuild process. The bookbuild, which is set to conclude on Tuesday for new investors and Wednesday for reinvestment participants, will play a crucial role in shaping the terms of this capital transaction.
This move by Westpac aligns with broader industry developments, as Australia’s prudential regulator announced in September that it would review the regulations governing AT1 bonds. This review was prompted by concerns arising from the collapse of Credit Suisse earlier in the year, which had a direct impact on AT1 bonds. These instruments are utilized by banks to stabilize cash flow during periods of financial stress, as highlighted by the Australian Prudential Regulation Authority (APRA).
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The global financial sector took note of AT1 bonds when Switzerland’s financial regulator wrote down 16 billion Swiss francs ($17.8 billion) worth of Credit Suisse AT1s following the bank’s failure. In this particular case, AT1 bondholders received no compensation, whereas shareholders, typically subordinate to bondholders in the event of a bank or company collapse, received $3.23 billion.
Given these considerations, Australia’s regulatory response has been proactive. Earlier in the year, Assistant Treasurer Stephen Jones emphasized that Australian law would not permit AT1 bondholders to face losses in the event of a bank collapse to ensure returns for equity holders.
This move by Westpac follows in the footsteps of the Commonwealth Bank, Australia’s largest by market capitalization, which successfully raised A$1.55 billion in May through a similar issuance of AT1 bonds. This marked the first such issuance by a domestic bank in Australia following the Credit Suisse crisis. Overall, Westpac’s capital-raising initiative is a strategic move to fortify its financial position, providing investors with an opportunity to participate in the strengthening of the bank’s capital base.