In May, National Australia Bank Ltd (ASX: NAB) decided to raise a record $5.5 billion of capital from shareholders.
Also in May, Westpac Banking Corp (ASX: WBC) sought to raise $2 billion through its dividend reinvestment plan.
It then sold a big ownership stake in its subsidiary, BT Investment Management Ltd (ASX: BTT)
Then it decided to issue $750 million of hybrid notes…
Until an announcement to the ASX today,when it noted that: "the Offer size was increased to approximately $1.25 billion."
Finally, Australia and New Zealand Banking Group (ASX: ANZ) today announced it'd raise $3 billion. The raising will be conducted mostly by diluting existing shareholders, but also by offering a parcel of shares to existing investors.
Why are the banks raising capital?
Australia's biggest banks, known as Domestic Systemically Important Banks (D-SIBs) are being called out by the regulator, APRA, which is now taking a firm stance on risks to our financial system.
It's already made decisions which make it less appealing for the banks to lend to property investors, raised the risk weighting for all residential mortgages, and will likely impose a higher capital buffer, known as the CET1 ratio.
So far, three of the four major banks have taken action on the changes, leaving just Commonwealth Bank of Australia (ASX: CBA) to raise capital.
CBA is the best placed big bank to deal with these challenges. However, I doubt it'll be able to withstand the allure of taking the easy money option from institutions and shareholders. Both parties appear more than willing to lay down their hard-earned cash, for a bi-annual dividend and the chance to hold its shares in their portfolios.
Should you buy the banks?
I'm on record as saying I am not a buyer of bank stocks at today's prices and in recent times I've seen nothing to change my opinion.
Increased regulation is but one key risk facing the big banks at a time when their share prices are very expensive.
Throw in expectations of much slower growth in credit markets, a frothy housing market, increased competition and enormous leverage to the market cycle, and – frankly – big bank stocks are best left to the day traders and everyone else seeking to play the greater fool (lowercase-f).
Buyer beware.
Sell the banks and buy THIS dividend stock…
