Shares of Commonwealth Bank of Australia (ASX: CBA) have emerged from a trading halt this morning following the completion of the retail bookbuild announced last week. The shares rose initially but have since fallen 0.9% to $74.45.
So What: Australia's largest bank has officially completed its capital raising. It raised a total of $5.1 billion, which includes the proceeds from the institutional and retail components of the entitlement offer, together with the $1.5 billion raised in the shortfall of its retail entitlement offer, announced on Friday last week.
The bank said, "We would like to thank our shareholders who, despite the recent market volatility, have provided both broad and deep support for our capital raising. This places the Commonwealth Bank of Australia as one of the strongest capitalised banks in the world" (emphasis added).
Indeed, the capital raising was necessary to meet the new capital requirements set by the Australian Prudential Regulation Authority, or APRA. This will force Commonwealth Bank to bolster its capital reserve risk ratio from 16% to "at least" 25%.
Notably, Macquarie Group Ltd (ASX: MQG), Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) are also subject to these requirements. The latter three have also announced major capital raisings over the last few months, raising approximately $16 billion in new funds.
Now What: Although Commonwealth Bank got the money that it needed, there is a very real chance the banks could be forced to raise even more capital in the near future. The fact that Commonwealth Bank fell $1.5 billion short in its retail offer is concerning as it shows that investors are nowhere near as hot on the sector as they were just six months ago.
There are strong headwinds facing the bank sector. Given that many investors are heavily weighted towards the banks as it is, it seems reasonable to assume that investors could be less inclined to take part in any upcoming capital raisings – investors do have a limited amount of capital to deploy, after all.
Although Commonwealth Bank's shares are considerably more attractive than they were in April this year, where they traded for nearly $97 a share, they still present a rather expensive investment opportunity. In this market, there are plenty of other great investment opportunities investors should consider as an alternative to the bank.
