UK banks haven’t done much well this year, but they do at least know how to run a rights issue/placing with clawback. It is a different story down under.
Overnight, Commonwealth Bank of Australia was forced to scrap and then relaunch a $1.4bn fund raising after an amazing bust up with its lead adviser Merrill Lynch.
The bank was forced to reprice because someone forgot to keep investors informed of some key details — like a higher than expected increase in bad debts.
The Aussie press are not amused.
The Australian:
COMMONWEALTH Bank’s $2 billion capital-raising snafu has made a laughing stock of the entire Australian market. The situation has arisen from a communication failure between the second biggest bank in the land and one of the premier investment banks in the world, Merrill Lynch.
Worse still, it has exposed the bank to big question marks over its continuous disclosure obligations, given the increase in bad-debt fees unveiled last night came after the first failed deal, but arguably should have been known to the entire market.
A brawl between CBA and Merrill over how yesterday’s placement unraveled is now on the cards. It is understood that CBA believes it gave the investment bank the information about the higher loan loss provisions ahead of the placement occurring, including a draft of the planned press release about the placement.
The press release announced that loan impairment charges had risen, and were expected to run to 60 basis points or 0.6% of gross loans and acceptances. Merrill for its part is believed to be arguing that CBA’s disclosure to it ahead of the placement occurring was late, and that it could not be disclosed by Merrill ahead of formal disclosure by CBA in any event. The argument has the potential to become a lawyer’s benefit, and it is quite possible that by the time it’s over, some well-paid suits will be looking for work.
After such an extraordinary year, it was probably inevitable that it had to end in tears. The spectacle this morning of Commonwealth Bank having to pull and reprice its $2 billion share placement – the last of a $50 billion rush by large Australian corporates in recent months – is unprecedented for an issue of such scale and a company of such repute. Investment bankers are looking on at the debacle in amazement.
Funds managers are furious, having being told they would receive stock at $27 a share, and then learning of an increase in bad debts after the placement was completed. Funds managers now face the prospect of having to unwind hedging positions taken on the basis of the placement because the placement is now going to be repriced. Some are not sure they will even get stock in the second version. Legal action seems certain to follow. Whatever unfolds, it seems certain that the credibility of CBA, and of the investment bank that placed the issue, Merrill Lynch, will be severely damaged. “What a complete shemozzle,” was the reaction of one senior investment banker this morning.
Related link:
CBA and Merrill in spat over share sale – FT.com