Gotianun-led East West Bank plans to raise as much as P5 billion from the sale of preferred shares, bracing for growth opportunities amid stringent capital adequacy requirements under the Basel 3 framework.
In a disclosure to the Philippine Stock Exchange (PSE) Monday, the bank said it had received board approval to issue up to 500 million perpetual preferred shares that would qualify as core or tier 1 capital. These will be issued at the par value of P10 a share.
The bank amended Monday a previous disclosure that indicated plans to issue only up to five million preferred shares.
“We are looking to raise up to a maximum of P5 billion,” East West bank president Antonio Moncupa Jr. said in an e-mail to the Inquirer.
Asked why the bank was keen on offering preferred shares instead of outright equity or common shares, Moncupa said it was good to diversify the bank’s equity structure “to optimize the value for common shareholders while at the same time giving fair and reasonable yield to preferred shareholders.”
“While preferred shares could offer attractive returns to investors, it is non-dilutive to common shareholders. At the same time, it moderates the pressure to meet the objective of growing book value, which many in the finance profession consider as the most important performance metric,” Moncupa said.
Basel 3 introduced a complex package of reforms designed to improve the ability of banks to absorb losses. This also extended the coverage of financial risks and required a stronger firewall against periods of stress.
Meanwhile, the bank also plans to diversify its product offerings by breaking into the insurance and leasing businesses, taking advantage of the flexibility offered by its universal banking license.
In its disclosure, the bank said its board of directors had authorized the bank to engage in bancassurance and non-life insurance business, either as a general agent or a broker.
Bancassurance, a new growth area for many banks in the region, refers to the cross-selling of insurance products in bank branches.
In the case of East West, it wants to enter both the life and non-life insurance businesses, similar to the offerings of many of its universal bank peers.
Apart from the insurance business, East West also wants to set up a wholly owned finance and leasing company.
The entry into the finance and leasing business is seen to complement the bank’s core lending activities. In this new business, the bank owns the leased asset—such as a heavy equipment or cars—which are leased by a customer for an agreed term and rental amount.
These plans will be presented to shareholders during their annual meeting on April 25.