Wry & Dry

Westpac gets depositors to pay for capital raising. Masterstroke.

Wry & Dry wishes to nominate new Westpac Chief Teller, Brian Hartzer, for the Nobel Prize for Chutzpah [1].  Mr Hartzer's masterstroke: get bank depositors to effectively pay for Westpac's latest capital raising.  

Mr Hartzer announced (a) a capital raising (to help meet higher capital adequacy requirements); (b) a higher dividend next year and (c) at the same time increasing Westpac's home lending rate by 0.20% points; but not announcing that all of this would likely be paid for by depositers.  W&D has to dip his lid.

W&D's logic is this:


But wait there's more!  And this is where the genius of the move is laid bare. 

Because deposit rates come down, the dreaded 'search for yield' (i.e. bank customers see their deposit income diminish and so invest in shares to get a higher yield) resumes.  Coupled with the promise of an increased Westpac dividend, this pushes back up the share price of Westpac.  And so that senior executives' performance bonuses (based on 'total shareholder return') keep on going up.  Brilliant.

Of course, Brian Hartzer is being burnt in effigy across Australia.  But do you think he and his senior executives care?