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Bendigo and Adelaide Bank agrees to acquire Bank of Cyprus Australia

16 December 2011 |Media centre

Key points

  • BEN to acquire Bank of Cyprus Australia
  • Purchase price of approximately A$130m
  • Announces equity raising - including $120m fully underwritten placement, and SPP to be launched early in early 2012
  • Announces write-down of A$95m of goodwill associated with BEN’s wealth segment, due to continuing contraction of the margin lending portfolio
  • Goodwill write down will impact statutory earnings but will not affect regulatory capital position or cash earnings1, which are expected to be similar to the prior corresponding period (first half FY2011)

Bendigo and Adelaide Bank (BEN) has announced that it has reached agreement with the Bank of Cyprus Group to acquire its 100 per cent owned Australian subsidiary, Bank of Cyprus Australia Limited (BOCAL). The purchase will be for an estimated total consideration of A$130 million, and will be both earnings and return on equity (ROE) accretive following integration2.

BOCAL is a bank focused on the Greek and Cypriot communities through a network of 14 branches based in New South Wales, Victoria and South Australia with interest bearing assets of A$1.4 billion. BOCAL is the largest Hellenic bank in Australia with a strong track record of growth driven by successful community engagement and customer satisfaction.

Bendigo and Adelaide Bank Chairman, Robert Johanson, said the purchase of BOCAL provided a strategically complementary addition to the broader BEN network.

“The business aligns closely with the cultural and strategic values of BEN, and its performance is a reflection of high customer advocacy and an excellent track record of direct community engagement,” Mr Johanson said.

Bendigo and Adelaide Bank Group Managing Director, Mike Hirst, said there were good growth opportunities for the business through access to BEN’s broader product offering, further targeted branch expansion, and the removal of growth constraints currently being imposed on the business.

“BOCAL is an attractive business with a strong capital and liquidity position,” Mr Hirst said.

“It is predominantly funded by retail deposits, maintains a conservative risk profile with 99pc of the loan book secured against property, and has an excellent credit history. BEN is confident that there is significant scope to improve the earnings of the business through funding and operational synergies.”

BEN and Bank of Cyprus Group have agreed a term sheet for the acquisition which is expressed to be binding. The acquisition of BOCAL is subject to conditions including applicable regulatory approvals for both parties and a material adverse change condition. Further terms and conditions of the sale are to be negotiated in good faith and are subject to approval by both the Board of BEN and the Bank of Cyprus Group. Subject to regulatory approvals being obtained and all other conditions being satisfied, the purchase is expected to be completed by the end of February 2012.

UBS and Freehills are acting as advisors to BEN on the transaction.

Equity raising

BEN is undertaking a fully underwritten A$120m share placement to selected institutional investors at a price of A$8.45 per share. In addition, retail shareholders will have the opportunity to participate in a non-underwritten share purchase plan (SPP) early in 2012. The proceeds from the capital raising will support the acquisition funding (c.A$100m consideration net of capital release) and to strengthen the balance sheet and provide for future growth opportunities. Following the acquisition and institutional placement, BEN’s pro forma Tier 1 capital ratio will be approx 8.00pc, and 8.24pc after the SPP. Core Tier 1 ratio will be approx 7.18pc, and 7.43pc after the SPP3.

“The proceeds of the raising will strengthen BEN’s capital base and provide us with flexibility to grow, particularly with the benefit of our improved credit rating,” Mr Hirst said in reference to S&P’s upgrade of BEN’s long-term credit rating from BBB+ to A- on 6 December 2011. Now all global credit rating agencies have assigned BEN with a long term issuer rating of at least an equivalent ‘A-‘ rating.

Trading in BEN shares on the ASX will be halted for one day while the share placement is being undertaken. Trading is expected to recommence on Monday, 19 December 2011 following the announcement of the outcome of the share placement. The placement shares will rank equally with all existing fully paid ordinary shares in the capital of BEN.

Following the institutional placement, BEN will offer eligible shareholders the opportunity to participate in a non-underwritten SPP. The SPP will provide eligible ordinary shareholders (being those persons registered as ordinary shareholders as at 7pm (EDST) on 15 December 2011 who reside in Australia or New Zealand) with the opportunity to subscribe for new BEN ordinary shares. Further details of the SPP will be provided to eligible shareholders in due course.

If the acquisition of BOCAL does not proceed, the proceeds from the equity raising will be used to strengthen BEN’s capital base, and provide it with increased flexibility for future growth.

Market update

At the same time as announcing the proposed transaction and equity raising, Mr Hirst provided an update on first half trading conditions for BEN.

“The banking industry globally continues to experience extreme pressure on funding costs, primarily as a consequence of events in Europe,” Mr Hirst said.

“We are not immune to this.”

“Despite this, asset and liability growth through our retail network remains towards the top end of the sector, and our credit quality remains sound. However, our margin lending business continues to suffer from a reducing portfolio. This is in line with the broader margin lending industry and is a result of market volatility and a lack of investor risk appetite.”

The size of the Leveraged Equities margin lending portfolio is now at approximately $2.6b, down circa 19 per cent since 30 June 2011, and more than A$1b from its balance at January 2009. As a result of this, the Board of BEN has approved a A$95m write-down of the goodwill associated with this business. The write-down will affect statutory earnings. However, it will not affect BEN’s regulatory capital position or cash-earnings for 1H12, which are expected to be similar to the prior corresponding period. The current dividend payout policy is to pay 60 to 70pc of cash earnings as dividends.

“We remain convinced that margin loans are appropriate products, with a legitimate place in the investment portfolios of many of our customers,” Mr Hirst said.

“However, the impairment testing required under current accounting standards is prescriptive about how this goodwill should be accounted for, and we have therefore made this decision. Ironically, this write-down will provide a moderate boost to our ongoing return on equity,” he said.

1 Cash earnings is the generally accepted term for measuring financial institution performance and reflects the underlying, sustainable business performance by excluding one-off and other adjustments where the accounting for financial instruments differs from the business use and intent
2 Based on a A$120m placement to fund the acquisition
3 Pro-forma capital ratios based on a forecast 31 December 2011 figure of 7.91pc Tier 1 and 7.06pc Core Tier 1. Assumes A$70m SPP.


This announcement has been prepared for publication in Australia and may not be released or distributed in the United States. This announcement does not constitute an offer to sell, or the solicitation of an offer to buy, securities in the United States. The securities described in this announcement have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) or the securities laws of any state or other jurisdiction of the United States and may not be offered or sold, directly or indirectly, in the United States except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and other applicable U.S. state securities laws.

This announcement includes references to credit ratings of BEN. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating agency.

This announcement contains certain "forward-looking statements". The words "will", "expect", "forecast", "propose", "continue”, and other similar expressions, including statements regarding the effects of the acquisition of BOCAL, are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of BEN that may cause actual results to differ materially from those expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these statements. You are cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements only speak as of the date of this announcement and BEN assumes no obligation to update such information

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