Westpac needs to raise $3 billion in capital: Morningstar

In a research note this week, Morningstar analyst David Ellis said that each of the four major lenders need a CET1 ratio near 10 per cent to be ranked in the top quartile of global peers based on APRA’s conservative calculation.

“To achieve a 10 per cent CET1 ratio, we estimate Westpac needs a total of $6 billion in additional core equity capital before the end of fiscal 2018, of which $3 billion is needed before 1 July 2016,” Mr Ellis said.

“Either a $3 billion entitlements issue or an institutional placement and SPP is a real possibility in coming months.

“The additional capital required in 2017 and 2018 will likely be raised from future retained earnings, dividend reinvestment plans (DRPs), DRP underwrites and asset sales.”

Earlier this month, ANZ raised $3 billion to meet its CET1 capital ratio requirements. NAB announced a $5.5 billion capital raising in May and Westpac raised $2 billion the same month through its dividend reinvestment plan.

Following last week’s $5 billion capital raising by CBA, Digital Finance Analytics principal Martin North says there is no doubt in his mind that capital will continue to be required.

“We will see more capital raisings,” Mr North told Mortgage Business.

“That means the prices of mortgages will continue to rise irrespective of what happens to interest rates.

"We are in a circle where bigger house prices allow bigger loans to be made, which allows the banks to make more loans and require more capital, like a black hole sucking everything in."