NAB builds a lead by the book

Ahead of the other big banks in raising capital, NAB (ASX: NAB) has also taken the lead in trying to make them fairer.

I’m not sure what Cameron Clyne actually achieved during his five years in charge of NAB (ASX: NAB) and maybe he’s not either. But long-suffering NAB shareholders should be happy that his successor, Andrew Thorburn, is more than making up for the inaction.

Thorburn is in the process of completing NAB’s exit from the US and has announced plans to exit the company’s troubled British adventure by demerging and floating its Clydesdale and Yorkshire banking businesses. In anticipation of APRA tightening capital requirements, NAB has also raised additional capital.

Of more interest to shareholders might be the fact that the bank, through its nabtrade broking arm, is offering clients access to ASX Bookbuild. There’s no word on whether Thorburn was directly involved in this decision but it appears to reflect his desire to put the bank’s customers first.

When a company needs additional capital or decides to list on the ASX (ASX: ASX), it employs brokers and investment bankers to run the process. Unfortunately, they usually have a conflict of interest which works against the company raising capital and its current shareholders.

While current shareholders would prefer the proceeds from the offer to be maximised, brokers and investment bankers have other incentives - namely, the desire to please other clients who participate in the offering. So instead of simply trying to maximise the price at which proceeds are raised, they’ll often use a price below the current share price (or below the market-clearing price for floats) to ensure these clients earn instant gains on their new shares.

Needless to say, the price setting deliberations are conducted behind closed doors and subject to a great deal of discretion on the part of brokers and bankers. This is far from ideal for current shareholders and others that aren't privy to the sweetheart deals dished out to clients of the broker or bank.

ASX Bookbuild attempts to reduce this unfairness by making pricing of the raising transparent and opening participation to everyone that wants it. This should mean companies raise more money while opportunities for brokers and investment banks to channel sweetheart deals to favoured clients are reduced.

ASX Bookbuild has only been used in nine offerings, raising a total of $110m, but support from NAB and other big banks could see it become a larger feature of the capital raising landscape. And that could only be a good thing. 

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