Hmm, did anyone see this coming? It seems not. Brisbane-based regional Bank of Queensland has ‘fessed up to a shock first-half loss of $91 million, to become the first local bank to report a loss in a reporting period for years.
The move will see a significant fall in the share price and existing shareholders will be heavily diluted as the bank seeks to raise enough new capital to keep regulators happy and to redeem the remaining $105 million of convertible notes that don’t meet the new guidelines for acceptable capital for a bank.
The news will force the Reserve Bank to rewrite its first Financial Stability Review of the year for the Australian financial system, which is due out on Wednesday. In the minutes of the March 6 RBA board meeting, the board discussed the review and were told that while the banking system was in “a relatively strong condition”.
“Banks’ non-performing asset levels had come down a little recently, but remained elevated, especially for business loans. Overall, the Australian banks had continued to record robust profits, although the slow credit growth environment was likely to constrain the pace of future profit growth.”
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It would seem the problems at the Bank of Queensland are confined to it, judging from what it said today. The Bank of Queensland is looking for $450 million, with 74 million shares to be issued, a third of its existing shares on issue, a sign of how desperate the bank is for new capital. BoQ shares went into a trading halt this morning at Friday’s close of $7.30. they will probably relist when the $150 million placement to institutional shareholders is done at a significant discount to that price. A further issue of $135 million will be offered to institutional shareholders and another $165 million will be sought from retail shareholders.
Driving the shock loss was a more than doubling of bad debts, thanks in part to the impact of last year’s big wet in Queensland, especially in and around Brisbane. To repair the damage to the balance sheet and to keep regulators happy, the bank also revealed plans to raise the $450 million of fresh capital. BoQ said its impairment costs on loans will be $328 million for the six months to February, up from $134 million in the same period in the previous year.
That will lead to a $91 million loss for the first half, down from a $48 million profit in the previous corresponding period.
“BoQ’s underlying performance was achieved against a backdrop of continued variability in the strength of the Queensland economy, which has negatively impacted the commercial and residential property market,” managing director Stuart Grimshaw said in a statement. “Queensland has been negatively impacted by the flow-on effects of a downturn in tourism and has endured recent natural disasters such as floods and cyclones.” He said the bank had taken a charge of $160 million on loans due to the economic conditions in Queensland.
BoQ says it plans to strengthen its balance sheet by selling about 74 million new shares, around a third of the shares it currently has on issue. Existing shareholders will be offered around $300 million new shares in an entitlement offer, and a further $150 million could be raised through the placement of shares to institutional shareholders. ”This equity raising will strengthen our balance sheet and provide Bank of Queensland with the capacity for continued growth,” Grimshaw said.
On February 24, ratings agency Standard and Poor’s placed the Bank of Queensland’s long-term rating on Credit Watch Positive following an update of its assessment of BoQ’s capital and earnings.
S&P said “We consider that our assessment of Bank of Queensland’s future capitalisation and earnings may support a higher rating.” And Grimshaw said in a statement that he welcomed S&P’s decision so soon after it downgraded the bank’s rating to BBB in November last year.
S&P expects to resolve the CreditWatch within the next 90 days. Well, this morning that was resolved, but probably not in the way that many people would have though. The bank revealed the surprise loss for the first half the 2012 financial year 24 days ahead of the scheduled results announcement on April 19. Times are tough at the BoQ.
Bank of Queensland shares have traded through a range of a high of $10 to a low of $6.46 this year.