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Why Bank of Queensland shares are in a trading halt

James Mickleboro
No deal

The Bank of Queensland Limited (ASX: BOQ) share price won’t be going anywhere on Monday after the regional bank requested a trading halt.

Why is Bank of Queensland in a trading halt?

This morning Bank of Queensland requested a trading halt whilst it prepares to make an announcement in relation to an equity raising comprising an institutional placement and share purchase plan.

This news won’t come as a surprise to many investors given the bank’s poor performance in FY 2019 and its underwhelming outlook for the year ahead.

In FY 2019 the regional bank posted cash earnings after tax of $320 million. This was down 14% on the prior corresponding period. In addition to this, it revealed a 300-basis point increase in its cost to income ratio to 50.5% and a 7-basis point increase in loan impairment expense.

This ultimately led to Bank of Queensland ending the period with a Common Equity Tier 1 (CET1) capital ratio of 9.04%, down 27 basis points.

FY 2020 expectations.

Unfortunately, things aren’t expected to get any better in FY 2020.

The bank’s new managing director & CEO, George Frazis, said: “We expect lower year-on-year cash earnings in FY20 with revenue and impairment outcomes in line with FY19, higher post-Hayne regulatory and compliance costs, and increased operating expenses related to our investment in technology.”

Unlike Commonwealth Bank of Australia (ASX: CBA) and the rest of the big four, Bank of Queensland’s CET1 needs to be above 8.5% to be unquestionably strong.

Whilst it is over this level at the moment, a poor performance in FY 2020 and unexpected remediation costs could change things very quickly. Hence why it is probably a smart move by the bank to secure additional capital now and strengthen its balance sheet sooner rather than later.

What is Bank of Queensland seeking to raise?

Bank of Queensland is undertaking a fully underwritten $250 million institutional share placement. This will be followed by a non-underwritten share purchase plan aiming to raise approximately $25 million.

The final issue price of the placement will be determined by way of a variable price bookbuild across $7.69 – $7.78 per new share. This represents a 10% to 11% discount to its last close price of $8.64.

Management advised: “The capital raising will be used to strengthen BOQ’s balance sheet, provide an increased buffer above the Australian Prudential Regulation Authority’s (APRA) “unquestionably strong” Common Equity Tier 1 (CET1) capital ratio benchmark and create additional capacity for BOQ to implement its strategic priorities.”

The post Why Bank of Queensland shares are in a trading halt appeared first on Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019