NEWS - Financial Services
Published 7:03 AM, 10 Aug 2009
Last update 6:46 PM, 10 Aug 2009
Bendigo and Adelaide Bank posts 24% drop in cash earnings, launches $300m capital raising
By a staff reporter
Regional lender Bendigo and Adelaide Bank Ltd has posted a 24 per cent drop in cash earnings, but said its credit quality remains sound and it was positioned well for sustainable growth, as it launched a $300 million capital raising.
Bendigo reported a cash earnings result of $182.2 million for 2008/09, down 24 per cent on the previous financial year. Its net profit dropped 57.7 per cent to $83.8 million.
The bank said the reduced profit was due to a slowing economy and global recession, an unprecedented drop in Australia's official cash rate, and higher funding costs.
The result is lower than its earlier guidance of $145.1 million after a profit warning in April due to higher funding costs.
“Going forward, and particularly after the fully underwritten capital raising announced today, we have the flexibility and capacity to take advantage of emerging market opportunities," Bendigo and Adelaide Bank Group managing director Mike Hirst said.
“In Bendigo and Adelaide Bank, I see an organisation with a sound credit quality, a balance sheet with a low level of risk, and a high quality capital base.
"This places us in an ideal position to grow our businesses in a sustainable way, while continuing to meet and exceed the expectations of our customers and creating real wealth for our shareholders."
Earlier, the bank launched a $300 million capital raising, in which it is offering a one for 12 non-renounceable entitlement offer of ordinary shares, placing its shares in a trading halt until no later than August 12.
"The trading halt is necessary for Bendigo to make an announcement to the market in relation to a capital raising involving retail and institutional investors," the company told the Australian Securities Exchange (ASX).
Bendigo and Adelaide Bank's shares last traded at $8.13.
The regional lender said it would seek $173 million from retail and institutional shareholders in a rights issue, and place another $127 million of ordinary shares with selected sophisticated and institutional investors, with the new shares to be sold at $6.75 each - a 17 per cent discount to the company's last traded price.
The company said additional capital would be used to strengthen the bank’s capital base, enhance financial flexibility and seize growth opportunities as markets continue to improve.
Great Southern
Bendigo, which warned of a decline in its annual cash earnings last week, said it had a $550 million exposure to borrowers to the managed investment schemes of collapsed plantation company, Great Southern, with an average exposure of less than $70,000 per borrower.
But it said most of its asset base was secured by residential mortgages and the Great Southern portfolio accounted for less than 1.5 per cent of its asset base.
"Credit quality remains generally sound and is in line with the bank's low risk appetite," Bendigo said.
"The bank takes a conservative approach to provisioning, and impaired loans as a percentage of total assets continue to be at low levels.
"As at June 30, 2009 gross impaired loans were just 0.49 per cent of total assets."
Bendigo reported a net profit after tax before significant items of $173.2 million, and said its net interest income had increased by 6.3 per cent to $635 million.
The bank declared a final dividend of 15 cents per share, taking the total dividend for the financial year to 43 cents per share.
Bendigo said retail deposits had allowed the bank to reduce its reliance on wholesale funding, as they increased by 20 per cent to more than $28.5 billion.
Managing director Mike Hirst also said there had been a deliberate approach to reshape the business.
“There is no doubt that the last financial year presented unprecedented challenges for all Australian banks, with everything from a deteriorating credit cycle and rapid fall in official cash rates to reduced wholesale funding options impacting significantly on financial results,” Mr Hirst said.
Operating expenses for the bank flattened in the second half of the 2008/9 financial year.
Bendigo took measures to reduce operating costs, which included a request that employees volunteer to take 10 days in unpaid leave. The bank said the majority of staff took part in this program.
Revenue and cost synergies from the merger between Adelaide Bank and Bendigo Bank were reported as still being realised.
Bendigo and Adelaide Bank has 1.4 million customers, across 188 bank-owned branches and 238 Community Bank branches.
To read Business Spectator's interview with Bendigo and Adelaide Bank chief executive Mike Hirst click here.
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