Australia and New Zealand Banking Group (ASX: ANZ) could learn a few things about taming its monkey from National Australia Bank Ltd. (ASX: NAB), as speculation mounts that ANZ will be the next to tap shareholders for extra funds.
ANZ's chief Mike Smith has strongly refuted this, going as far as calling those that have been fueling the belief "lemmings".
I am not saying he is wrong, but I suspect he is going to find out what Fairfax Media Limited (ASX: FXJ) did during the global financial crisis – that perception is often more powerful than reality.
I was working for Fairfax back then when the market was convinced that it needed to raise capital in the face of a deteriorating advertising market and falling newspaper subscriptions.
Fairfax strenuously denied it on at least four separate occasions, but the speculation was like having a monkey on its back and its share price suffered.
Fairfax had a sudden change of heart and the stock subsequently bounced as buyers dared to step back into the ring. No one was really keen on buying the stock without knowing how big a discount it will be selling new shares at.
I think the same thing will happen to ANZ and its monkey with the stock tumbling close to 11% over the past month.
It's certainly not the worst performer – that goes to Westpac Banking Corp (ASX: WBC) and you can read Owen Raskiewicz's explanation here – but ANZ may need over $2 billion in extra cash.
Credit Suisse crunched the numbers and calculated that if ANZ wants to match its tier-1 ratio with the other three big banks, it will need to find an additional $2.4 billion.
The tier-1 ratio is a regulatory requirement stipulating the amount of liquid assets (such as cash) banks have to hold in relation to their loan book.
NAB has secured a first mover advantage with the biggest capital raising in the history of the ASX that's worth $5.5 billion. By going big first, it ensured the raising could be digested by the market.
This is why NAB is the only bank I would buy (and the only bank stock I own currently) as it has dealt with its monkey.
NAB arguably raised more than it needed but now there is no question about its cash needs, and I think it was a smart move as it capitalised on the strong interest in bank shares at a time when shareholders are scrambling to buy high dividend-paying stocks.
Let's face it, Australian bank stocks are some of the most expensive in the world. Can you think of a better time for banks to be selling new shares for cash?
Further, operating conditions are expected to get tougher for the banks, not easier. Having a bigger cash buffer as they face growing headwinds is a good idea.
Although, for ANZ shareholders, let's hope the monkey doesn't win this fight.
