ANZ to Sell A$2.5 Billion in Shares to Fund Expansion

May 27 (Bloomberg) -- Australia & New Zealand Banking Group Ltd., the nation’s fourth-largest lender, plans to raise A$2.5 billion ($2 billion) selling shares to fund a bid for Royal Bank of Scotland Plc’s Asian assets.

The Melbourne-based bank will sell the shares to institutional investors at A$14.40 each, a 7.5 percent discount to its last traded price, and will not increase the size of the offer, it said in a statement today.

Chief Executive Officer Mike Smith, who joined ANZ after running HSBC Holdings Plc’s Asian operations, is raising funds as Australia’s economy sinks to its first recession in 18 years. ANZ’s up against HSBC and Standard Chartered Plc in its bid for RBS’s Asian assets, which range from trading desks in Australia to bank branches in Pakistan.

“Buying distressed financial assets at a weak point in the market is a good strategy, but you have to have the financial strength to run the business through the remainder of the trough,” said Angus Gluskie, who manages about $260 million at White Funds Management Pty. in Sydney.

The placement has been underwritten by Deutsche Bank AG, JPMorgan Chase & Co. and UBS AG.

The bank will also sell equity to retail shareholders and reserve the right to scale back applications under the share- purchase plan if total demand exceeds A$350 million.

Profit Slump

ANZ last month said profit fell 28 percent to A$1.42 billion in the six months ended March 31, from A$1.96 billion a year earlier. Its credit impairment charge jumped 98 percent to A$1.44 billion, it said at the time.

In today’s statement, ANZ said its charge for credit derivatives losses had declined by about A$400 million after tax since March 31, reflecting lower credit spreads globally and a stronger Australian dollar. That improvement has been “largely offset” by a reduction hedging gains, it said.

ANZ shares, which have rallied 31 percent since a February low, closed at A$15.57 in Sydney yesterday. The stock’s been halted from trading until 10 a.m. tomorrow.

On April 16, ANZ confirmed it had been invited by RBS to participate in the sale process for the lender’s Asian assets.

Obtaining the Edinburgh-based bank’s Asian businesses may help Smith meet a goal of boosting the portion of revenue earned in Asia to 20 percent at a time swelling bad debts squeeze ANZ’s domestic profits.

RBS, Britain’s biggest government-owned bank, this month posted a first-quarter loss after writing down 4.9 billion pounds ($7.8 billion) as credit-market investments soured and bad loans increased in all its markets.

Asia Network

The bank serves more than 30,000 retail and commercial customers in China and is one of the ten biggest foreign-owned wholesale banks in the nation, according to its web site. In India, it serves 1.3 million customers, while in Indonesia, it has 360,000 customers, the web site says.

ANZ’s capital raising is “a positive thing to do,” said Peter Vann, who manages more than $600 million at Constellation Capital Management Ltd. in Sydney. On the RBS bid, Vann said “if it’s a sensible price and the deal stacks up, I’m happy. It’s a good time to buy something, it’s cheap.”

ANZ, which didn’t say which RBS assets it is pursuing, said an acquisition would initially reduce earnings per share before contributing to profit in the medium term.

The share sales would allow ANZ to fund an acquisition of the selected RBS Asia assets while maintaining its Tier 1 capital ratio, a key measure of financial health, above its target range of 7.5 percent to 8.0 percent, it said.

“ANZ’s long-term aspiration is to become a super regional bank focused on Australia, New Zealand and Asia Pacific,” the bank said in the statement.

ANZ in March said it plans to open 20 branches in China by 2012 and is applying for regulatory approval to establish a wholly owned, locally incorporated bank subsidiary in the world’s third-biggest economy.