Westpac to raise $1.7 bln to bolster capital

SYDNEY (Reuters) - Westpac Banking Corp (WBC.AX), Australia's second-largest lender, raised $1.7 billion through a share sale on Tuesday, seizing on a recent rally in financial stocks to bolster its balance sheet as bad debt charges rise.

Separately, third-ranked Commonwealth Bank of Australia (CBA.AX) launched an issue of A$1.25 billion ($828 million) of 3- and 5-year bonds, while smaller rival Australia and New Zealand Banking Group Ltd (ANZ) (ANZ.AX) was expected to price a bond issue topping $1 billion.

Westpac's A$2.5 billion fund raising is the latest in what is expected to be a string of capital raisings and debt sales by Asia Pacific banks that have largely escaped the worst of the subprime mortgage fallout battering U.S. and European peers, but that are now looking to shore up their balance sheets amid an economic slowdown.

Japan's leading banks, Mitsubishi UFJ Financial Group (8306.T) and Mizuho Financial Group (8411.T), recently raised a total of more than $8 billion to replenish capital drained by a global stock market slide.

Westpac shares were suspended on Tuesday pending the institutional share issue, but rival bank stocks fell.

Shares in top lender National Australia Bank (NAB) (NAB.AX) dropped 5.1 percent, Commonwealth lost 8.5 percent and ANZ was off 5.6 percent. The benchmark S&P/ASX 200 index .AXJO closed down 0.75 percent.

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BAD DEBTS RISING

Westpac said in a statement its performance in October and November, the first two months of its fiscal year, had been sound but suffered from higher impairment provisions on troubled corporate debt.

Last month, Commonwealth Bank warned investors to expect a big jump in bad debts, just days after National Australia Bank said it was raising A$3 billion to strengthen its balance sheet.

George Clapham, head of equities at Fortis Investment Partners, said Westpac's share sale reflected Australian banks' need to boost their Tier-1 capital ratios to satisfy lenders offshore.

"They've just got to raise capital because they're trying to get offshore funding, and people won't look at them until they've got a ratio in the 8's," Clapham said.

Tier-1 capital is the core measure of a bank's financial strength from a regulator's point of view. Banks are required to maintain a certain level of ultra-liquid Tier-1 capital as a cushion for depositors in case of a crisis.

Commonwealth Bank's current Tier-1 ratio is below the 8 percent mark, at 7.5 percent, according to its trading update last month, and the bank is expected by analysts to raise A$1-A$1.5 billion, possibly before Christmas.

MARKET RALLY

Westpac said its share issue, fully underwritten by JP Morgan, UBS and Morgan Stanley, would bring its Tier-1 capital ratio to around 8.32 percent after taking into account its $9 billion takeover of rival St George Bank SGB.AX, which was completed this month.

The bank is offering the new shares at A$16 each, a 10.5 percent discount to its Monday close, and is taking advantage of a rally in financial stocks over the past few days as more governments around the world announced massive economic stimulus plans.

"They picked a couple of up-days and decided to put their issue out there. It's not unexpected. You do these things when you can and the best time to do it is after a couple of good days when the general sentiment is reasonably good," said Angus Gluskie, portfolio manager at White Funds Management.

Westpac shares peaked in November last year at A$31.32 and have dropped 36 percent this year. The benchmark index .AXJO has lost 43 percent.

The bank, formerly Australia's fourth-largest lender, took over fifth-ranked St George in an all-share deal that was the country's biggest bank merger, creating a lender with total assets of A$500 billion, Thomson Reuters data shows. NAB is still the biggest lender with A$564.6 billion, the recent data shows.

(Additional reporting by Mark Bendeich, Sonali Paul and Cecile Lefort; Graphic by Catherine Trevethan, Editing by Ian Geoghegan)