There's growing anticipation that Macquarie Group Ltd (ASX: MQG) will tap shareholders for extra cash as the investment bank is tipped to win the bidding war for Australia and New Zealand Banking Group's (ASX: ANZ) auto and boat financing business.
News on who has been successful in buying ANZ Bank's Esanda business could be released as soon as today if not later this week, according to the Australian Financial Review.
Macquarie is seen as the front runner as it stares down competition from China's HNA Group and non-bank lender Pepper Group.
Private equity firms may have also tipped their hat into the ring for Esanda, which has a book value of around $1.1 billion.
Macquarie's bid for the business is estimated at between $1 billion and $1.5 billion when the group is holding around $17 million in cash.
If you included other liquid assets, the group's surplus capital will likely be much higher but management will probably favour undertaking a capital raising given that it has to comply with stricter capital adequacy ratios being imposed by banking regulators on its mortgage book. Further, Macquarie's scrip is valuable as it has performed strongly with the share price up by a third since the start of January.
The question is how much will it have to raise as that will impact on the size of the discount on its new share sale.
This is important because its share price is likely to come under pressure from the capital raising news and a stock generally falls towards the offer price of the share sale.
Morgan Stanley thinks Macquarie will seek a capital injection of $623 million to $1.1 billion, depending on the sale price of Esanda, and the deal will be 2.9% earnings per share accretive at the bottom end of the sales price range and will be at breakeven at the top if synergies are excluded.
The good news is Macquarie can probably get away its capital raising at a relatively modest discount to its current share price, which should limit the downside risk to the share price. If the stock does dip on the equity raising, it would represent a good buying opportunity even though the stock looks inexpensive at its current level with its forecast yield of around 5% for the current and next financial years.
Macquarie is a good way to leverage on rising equity markets as the stock tends to outperform in rising markets. Given the lower for longer interest rate environment, particularly now that the US Federal Reserve is expected to keep interest rates at a record low till sometime in 2016, global equities should perform strongly over the coming months.