Canadian Western Bank has raised $125-million in a common share offering as the Edmonton-based bank deals with the impact of rising loan losses tied to struggling energy companies.
The bought deal, announced after markets closed Thursday, valued more than 5.1 million CWB shares at $24.50 each – a 2.8-per-cent discount from Thursday's closing price of $25.23.
The bank said that the proceeds from the offering would be added to its capital base and used for general corporate purposes. Its common equity tier 1 ratio, a measure of financial health watched closely by regulators, was 8.2 per cent at the end of April, down 0.4 percentage points – but should rise to 8.8 per cent with the offering.
"This equity issue will support further profitable growth and provide flexibility as we continue to deliver our unique brand of targeted financial services and expand our client relationships across the country," chief executive officer Chris Fowler said in a statement.
Canada's big banks have seen their energy-related loan losses surge in recent quarters, after the dramatic decline in the price of oil left many energy companies struggling to meet their debt obligations.
But CWB – much smaller than the Big Six banks and largely centred on Alberta – has been hit considerably harder at a time when it is also diversifying its business model with acquisitions. In April, it agreed to acquire GE Capital's Canadian Franchise Finance business, which is expected to reduce its CET1 ratio by 0.15 percentage points when it closes in the third quarter.
In its second quarter, the bank set aside nearly $40-million to cover bad loans, mostly to oil and gas companies, up four-fold over the previous quarter. The provisions sent the bank's quarter-over-quarter profit tumbling about 37 per cent.
A syndicate of underwriters in the $125-million bought deal was led by BMO Nesbitt Burns and National Bank Financial Inc. CWB granted the underwriters the option of purchasing another 765,750 shares, which would raise the total value of the deal to $144-million.