Commonwealth Bank of Australia aims to raise A$900 million by selling hybrid securities to bolster its Tier-1 capital reserves, a measure of financial strength – reported Bloomberg. Hybrid securities are reported to have characteristics of both bonds and equity by delivering income at regular intervals till maturity, and subsequently allows investors to convert their holding to common stock.
Banks are required to maintain Tier-1 capital as a buffer to protect their deposits. They are also allowed to keep even higher ratios should they consider acquisitions or if they anticipate a rise in non-performing loans.
It has been reported that the bank’s profit dipped 11% in the first half ended June 30, as earnings declined at its wealth management division and loans soared. The bank, in a statement to stock exchange, said that the sale of around 4.5 million securities would raise its Tier 1 capital ratio by 30 basis points – reported the news agency.
However, Peter Vann of Constellation Capital Management in Sydney, commented: Unless they’ve got some acquisition on the cards, I just don’t see why they’re doing it. The bank’s current capital ratio is more than adequate.”
