Westpac has written the playbook – others now likely to follow

Westpac Banking Corporation (WBC) has re-listed this morning after finalising its 1 for 23 rights issue. At $25.50 per share, the entitlement was priced at a generous discount to the last traded price of $30.44 (TERP adjusted $30.23). One would therefore expect the stock to re-list at a discount to this price and re-test the $30 level. However, WBC opened this morning at $30.80, and at the height of its trading reached $31.83 – an extraordinary gain of $1.60 or 5.23%. It would therefore appear that the wider market is looking through the substantive $3.5bn capital raising and focussing on WBC’s pioneering decision to raise rates by 20 basis points in order to maintain its return on equity. And in hindsight it’s not overly surprising. A 0.2% increase on a $350bn+ mortgage book equates to an additional $700m in gross earnings. This has placed industry wide rate rises firmly on the agenda and it is likely that every major (and minor) lender in this country will now be fielding calls from shareholders imploring them to follow suit.