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CBA sets $3.7B rights issue as annual earnings rise 5%

Carla Gottgens | Bloomberg | Getty Images

Commonwealth Bank of Australia unveiled a 5 billion Australian dollar ($3.65 billion) rights issue on Wednesday as its annual profit met expectations, completing a major round of fundraising by Australia's "Big Four" lenders amid fears of a house price bubble.

CBA, the country's No. 2 lender by assets, announced a fully underwritten 1-for-23 rights issue at an offer price of A$71.50, a 12.9 percent discount to its last trading price. This brings the total funds raised by Australia's major banks since May to $A17 billion.

CBA posted a 5 percent rise in full-year cash profit to A$9.14 billion, compared with A$8.68 billion a year ago. The forecast, according to a consensus of six analysts polled by Reuters, was for A$9.15 billion. Total dividend for the year was A$4.20, an increase of 5 percent.

CBA will issue about 71 million new shares, following which its Tier-1 ratio will jump to 14.3 per cent on an internationally comparable basis, the highest among Australia's "Big Four" lenders.

The lender was raising capital after regulators ordered Australia's major banks to keep aside a bigger cash buffer against their oversized mortgage books, following sharp rises in Sydney and Melbourne house prices over the past two years.

Earlier this month, ANZ Banking Group tapped investors for A$3 billion in an institutional share placement while Westpac Banking Corp raised A$1.25 billion through a hybrid issue. National Australia Bank did a A$5.5 billion rights issue in May.

CBA said net interest margin, a main gauge of profitability for banks, fell 5 basis points to 2.09 percent.

Expense grew 5 percent from a year ago because of staff expenses, the impact of a lower Australian dollar and growing regulatory, compliance and remediation costs.

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Total provisions for impairment losses decreased 7 percent to A$3.65 billion.

CBA follows a different calendar to its peers, which report third-quarter numbers this month. NAB posted a 9 percent growth in unaudited cash profit amid lower bad debt charges while ANZ flagged a spike in bad debts in its brief update last week.

Shares in CBA, valued at A$134 billion, are down about 4 percent so far this year while the broader S&P/ASX200 index has gained 1 percent this year.