Why is the ANZ placement from 2015 such a big deal?

In this article, we seek to answer the question of why the ANZ placement from 2015 such a big deal 8 years on.

What was the ANZ placement?

In August 2015, then CEO of ANZ Bank Mike Smith told investors that,’ The recent capital raising has allowed ANZ to deal with known regulatory change, such as the higher capital adequacy requirements for Australian Mortgages and positions ANZ’s capital ratios within the top quartile of international peers’. His bank had just raised A$2.5bn in fresh capital, so he appeared right at the time. Would investors have imagined that the deal would come back to bite them?

Back in July of 2015, APRA raised its capital adequacy requirements for banks’ mortgage exposes from 15% to 25%. This meant ANZ needed $2.3bn in additional capital for its mortgage book and this was raised in the deal. Three years later, in mid-2018, the Commonwealth Director of Public Prosecutions launched proceedings against the bank after two years of investigations.

It was alleged that the investment banks running the sale took up 25.5m shares in the deal ($790m) and this fact was not disclosed to the market. But if it had been, it would have caused shareholders to transact shares in the company differently than what they would have when they did not know.

All’s well that ends bad…

More than 5 years on, the Federal Court ruled against the bank. Although the court has not yet determined the fine, ASIC would take the judgement as a win given how long it fought against it. Damning the company were emails tendered during the legal proceedings which showed bank executives discussing ways to avoid disclosing the fact that the shares were in the hands of underwriters.

ANZ tried to argue it did not need to disclose it because it was immaterial to the company’s future earnings and because the company had garnered full subscription to the capital raising. This argument was rejected by the Court and ASIC hailed the decision in its own media release.

‘Today’s decision is significant,’ declared ASIC boss Karen Chester. ‘ASIC has stayed a long course to achieve this outcome. It reaffirms ASIC’s long-standing expectation that an issuer of securities must disclose material shortfalls in capital raisings to the market.

‘Proper disclosure is fundamental to fair and efficient markets and price formation.  Investors need to be fully informed about information that is likely to have a material impact on the price or value of a security. In the context of capital raising transactions, ASIC expects that issuers will consider the information in their possession and make appropriate disclosures to the market – particularly where the capital raising is materially undersubscribed’.

What now for the bank?

It has been a difficult time for ANZ Bank. The two biggest dilemmas facing the bank are the mortgage wars and its move to buy Suncorp’s retail business looking like a sure thing before being halted by the ACCC. For some years now, the bank has trailed CBA and NAB in the mortgage wars due to sub-par technology. It has also suffered from being having higher-exposure to New Zealand, a market that is even less profitable than Australia. And now it has another regulatory fine to deal with.

Analysts have a $26.17 target on the stock, a price less than 4% higher than Monday’s closing price, and they expect earnings per share to retreat by 9% in FY24.

ANZ Bank (ASX:ANZ) share price chart, log scale (Source: TradingView)

We would avoid all Australian banks right now, but ANZ in particular given all the issues it is facing, with the placement being just another spanner in the works rather than the tip of an iceberg.

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