Commonwealth Bank of Australia (ASX: CBA) has emerged from a trading halt today following its $5 billion capital raising with its shares recording only a moderate decline.
The stock fell as much as 2.1% earlier in the session but has since recovered to trade 1.2% lower at $81.11. That's a very modest response from the market considering shares of Australia and New Zealand Banking Group (ASX: ANZ) were smashed 7.5% after it announced a $3 billion capital raising the week before, although that was also accompanied by a somewhat disappointing earnings result.
Commonwealth Bank became the last of Australia's Big Four banks to raise capital in order to meet the new capital standards prescribed by the Australian Prudential Regulation Authority, or APRA. It has so far raised $2.1 billion from institutional investors (with approximately 90% of entitlements being exercised) and will seek to make up the remainder of the $5 billion raising from retail shareholders through a renounceable entitlement offer.
Prior to ANZ's and Commonwealth Bank's raisings, National Australia Bank Ltd. (ASX: NAB) conducted a $5.5 billion rights issue in May this year, while some estimates suggest Westpac Banking Corp (ASX: WBC) will need to raise more than $6 billion in capital over the next two years.
The amount being raised by Commonwealth Bank is seen by most to be a reasonable amount – not too much that it will have a major impact on its return on equity (ROE) and not too little that it will be forced to tap the markets for more cash in the near future. However, others are more sceptical and believe that Commonwealth Bank could be forced to raise another $5 billion, and perhaps more once the new Basel IV banking rules are implemented.
Although Commonwealth Bank's shares have managed to find some support from investors today, long-term 'Foolish' investors ought to acknowledge the headwinds facing the industry, and recognise that now is the wrong time in the cycle to consider buying the bank's shares.
