UPDATE: ANZ Bank Raises A$2.5 Billion To Help Fund RBS Asset Bid

Australia and New Zealand Banking Group Ltd. (ANZ.AU) Wednesday raised A$2.5 billion by selling new shares to help fund its bid to buy Asian banking assets from Royal Bank of Scotland Group PLC (RBS).

The successful institutional placement, which will be followed by a A$350 million offer to retail shareholders, will also boost ANZ's capital position and help cushion against rising bad debts, with the bank warning that charges for bad debts will rise around 20% in the second half from the first half.

Earlier, Melbourne-based ANZ said in a statement it has lodged a non-binding bid to buy "selected" assets from RBS, which is selling retail and commercial banking businesses in eight countries around the region, including the key markets of India, China and Hong Kong. The bank didn't say which assets it bid for, but said a deal could weigh on earnings per share in the near term.

Despite volatile global financial markets, ANZ is pushing ahead with plans to become a "super regional" lender in Asia as it looks for new avenues of growth.

As planned, ANZ raised A$2.5 billion through an underwritten institutional share placement, at A$14.40 a share - a 7.5% discount to its last traded price of A$15.57. It said late Wednesday that the placement was "significantly oversubscribed", attracting support from a wide range of institutions.

The A$350 million share purchase plan for retail investors will remain open until June 1.

Strong interest in the large offer could help limit any downside to ANZ's shares when they resume trading Thursday.

Southern Cross Equities analyst T.S. Lim said that while HSBC and Standard Chartered are also in the hunt for RBS's Asian operations, they may not be interested in all the assets on the block, which could allow ANZ to secure some businesses. These might include RBS's Indonesian and Singaporean units, he said.

ANZ said there is no certainty its bid will succeed, and that it applies a "disciplined approach" to assessing investment opportunities.

"An acquisition of the selected RBS Asia assets would initially have a modest negative impact on reported earnings per share but over the medium term the impact would be expected to be positive," the bank said.

If the RBS transaction proceeds, ANZ said its Tier 1 capital ratio immediately afterwards would remain above its target range of 7.5% to 8.0%.

ANZ's major Australian rivals have all boosted their capital positions in recent months, looking to build a buffer against rising bad loans as Australia heads towards its first recession in almost 20 years.

"The banking outlook remains uncertain and difficult to predict especially with respect to credit provisions, revenue and the market value of securities and derivatives," ANZ said.

While Australia's major banks have largely avoided the credit-related troubles of their international peers, bad debts are rising quickly and offsetting growth in revenues across the sector.

ANZ said it expects second half provisions for bad debt will be around 20% higher than the A$1.44 billion recorded in the six months to March 31, with the commercial segment feeling increasing pressure.

The bank said market conditions in New Zealand remain challenging and it anticipates some further margin decline in the second half in that market.

The company said its capital raising would initially boost its capital ratios by around 90 basis points.

Southern Cross's Lim said that, while the outcome of the RBS asset sales process is uncertain, ANZ probably decided to go ahead with its capital raising after Australian authorities lifted a ban on the short-selling of financial stocks. He said that not doing so could have left the stock vulnerable to speculation that a share placement was likely.

-By Lyndal McFarland, Dow Jones Newswires; 61-3-9292-2093; lyndal.mcfarland@dowjones.com

(Cynthia Koons and Ross Kelly in Sydney contributed to this article)

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