CBA looks to top up capital base

While the country's biggest lender has ruled out the need for a traditional capital raising similar to National Australia Bank's $3 billion share placement this week, it is expected to underwrite its next dividend reinvestment plan to underpin its balance sheet.

Commbank's large retail shareholder base may also be offered the chance to subscribe for new stock at the declaration of its first half profit results in mid-February after missing out in the $2 billion institutional fund-raising exercise undertaken last month to pay for the acquisition of BankWest.

A further option includes the conversion of a long-standing issue of $750 million of hybrid stock into either cash or shares which is due in March next year.

The top-up measures are being considered by the bank following its announcement on Thursday that it faces much higher than anticipated bad debt charges of $1 billion after the failures of Allco Finance Group, the child-care operator ABC Learning and the US investment bank Lehman Brothers.

The new provisions - double what Commbank would normally expect - will deliver the final blow to any profit growth in its current first half and will see its full year result cut by between $200 million and $350 million, a plethora of analysts forecast yesterday.

The research by Deutsche Bank, Merrill Lynch, Citi and Goldman Sachs confirmed predictions from UBS that Commbank's golden run of profit growth is over.

The earnings downgrades were accompanied by lower price targets for Commbank's shares over the next few months and "sell" recommendations to the brokers' clients.

Revised price floors of between $33 (Deutsche) and $42 (Goldman Sachs JBWere) capped off a terrible period of trading for the bank's shares, which dropped from $39.98 during Monday to $32.10 by yesterday's close.

In the first two weeks of November Commbank's stock shed $10 in what has been a tough month for the banking sector. Their respective performances have been hit by increasing sour loans as the economy turns down in the wake of the global financial crisis.

Westpac's merger with St George, which has just been approved, has done little to offset the carnage in its share price, which dropped $4 over the past five days to $16.80.

NAB, which benefited from the short improvement in the market to get its capital raising away, shed $2.36 to end the week at $19.79 - below its share placement price of $20 - as the market ended the day up 1.4 per cent.

Westpac has weakened as a result of the underwriting of its dividend reinvestment plan which began on Thursday with the aim of raising $940 million.

The same factor depressed ANZ's share price in its $800 million capital boosting move that kicked in yesterday. ANZ's shares slipped 27c to $13.78, taking their fall for the week to $2.61.

That came as ANZ angrily denied reports that it was intending to cut 10 per cent of its staff, or 3500 jobs. "The speculation is wrong," said a spokeswoman who confirmed that there would be some job cuts as the bank reduces several layers of middle management.

It is thought about 500 staff might go as a result of the moves outlined by ANZ last month.

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