NAB's current $5.5 billion rights issue is the biggest capital raising in Australian corporate history and will dilute the bank's earnings, warns Perpetual.
Perpetual global equities portfolio manager Garry Laurence said the big Australian banks are "late to the party" when it comes to boosting their tier-one ratio.
NAB announced the successful completion of the institutional component of its $5.5 billion rights issue on Tuesday, with the retail component beginning yesterday.
In a recent newsletter, Mr Laurence advised investors to put their money into global banks rather than Australian ones.
"[Perpetual] owns banks like BBVA in Spain and Lloyds Bank in the UK. Lloyds has a core tier one ratio (equity over risk weighted assets) of 13.4 per cent, and BBVA is at 12.7 per cent," Mr Laurence said.
"This compares to National Australia Bank at 8.8 per cent (prior to its capital raise).
"This raising will dilute their earnings and reflects the fact that Australian banks are late to the party in raising their capital levels, with global banks having taken their medicine years ago," Mr Laurence said.
Furthermore, the Australian banks are much more expensive than global banks on a price/earnings (PE) basis, he said.
"The Commonwealth Bank is currently trading on a PE of 15. This compares to Lloyds Bank (the largest retail bank in the UK) on 10.7 and Wells Fargo (one of the largest and best run retail banks in the United States) on 13.5," Mr Laurence said.
"I wanted to highlight these issues about Australian banks ... because the Australian banking sector now represents more than 30 per cent of the ASX 300 by market capitalisation," Mr Laurence said.
"So the performance of the Australian banks going forward will affect the performance of the Australian share market. We feel much more comfortable investing in more attractively valued financials globally."
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