Nab's $3.5bn Fund-raiser May Indicate Thaw In Credit Markets

The Age

Thursday January 8, 2009

ERIC JOHNSTON

AUSTRALIAN banks have rushed to take advantage of the Federal Government's funding guarantee, tapping markets ahead of European and US rivals to raise more than $37 billion over the past month.

National Australia Bank has become the latest to test the appetite of global markets, yesterday raising $US2.5 billion ($A3.51 billion) through a bond issue to US investors. With this deal NAB has locked in more than half the $19 billion it is aiming for to help fund its loan book.

The issue - the first this year - is one of the largest undertaken by an Australian bank since the introduction of the guarantee. Significantly, the deal was priced at a discount to other large issues launched before Christmas, suggesting capital markets are gradually reopening. Indeed, NAB had been planning a smaller issue but strong demand for the transaction prompted it to increase the size of the deal.

"Clearly the market is starting to thaw out," a spokesman for the bank said. "We had a really good spread of investors, which encouraged us the Australian Government-guaranteed paper was being well received."

Other banks are now expected to push ahead with further bond issues to raise funds.

Among the big banks, ANZ has raised more than $3.7 billion through issues mostly to US investors, while Westpac has raised more than $3.5 billion through a series of transactions. Commonwealth has raised more than $3 billion in sales to Australian investors. And the banks have raised billions more through capital raisings aimed at bolstering their balance sheets.

The Rudd Government put in place a guarantee for Australian banks in November to help their fund-raising efforts in wholesale markets. The guarantee - which delivers the banks a AAA-credit rating - came about largely in response to credit markets seizing up and similar guarantees for banks introduced by European governments.

NAB placed the three-year government-guaranteed bond at 85 basis points above the bank bill. This compares with a $US2.4 billion three-year bond that rival Westpac issued in December, which was priced at more than 100 basis points over the benchmark swap rate.

NAB's deal also represented the first placement to come in below 100 basis points since jitters in term funding markets began to spread a year ago.

Banks generally generate half their funding from deposits, with the balance split evenly between short- and long-term funding.

While short-term bank funding pressures have eased through efforts by regulators, key long-term funding markets have remained stubbornly frozen.

Analysts said the pricing for the transaction was favourable compared with recent months, although all banks were still paying a big premium for debt compared with bonds issued by governments.

NAB has now raised more than $10 billion in term funding since the end of September. It is believed that NAB is considering issuing more than its target of $19 billion, if market conditions remain supportive. Any additional funds will be used to bolster its balance sheet.

Brokerage Credit Suisse estimates about $98 billion of term bank funding is due to mature within the next 12 months.

Barclays Capital, HSBC, Merrill Lynch and RBC Capital Markets jointly led the NAB offer, which was priced at the bottom end of a 85 to 90 basis-point range.

© 2009 The Age

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