Unity Bank has priced A$27.5 million in Additional Tier 1 capital, a rarity in the mutual ADI sector, which relies on retained earnings to support growth.
Unity priced the AT1 capital at a spread of 600 bps over 3-month BBSW, with pricing finalised late last week.
The Capital Notes are floating rate notes which are unsecured, non-cumulative, perpetual and subordinated debt obligations of the bank. Thus, essentially equity – and worthless and written off if the worst comes to the worst for this veteran amalgamation of some of the most spirited, industry-centric credit unions.
They have been doing the collectivist, collegiate thing for more than 60 years, and still setting out to make a difference.
In May 2022, P&N Bank placed $75 million in Capital Notes, the first securities of this type for a mutual ADI. With impairments and provisions competing with stay-in-business priorities, and there being the urgency of following the market on digital and user experience … well, capital is surely in demand.
So there may soon be quite a list of AT1 issues before the 2024 financial year is out for financial intermediaries to profit from.
“Whilst we are already strongly capitalised and well above our prudential requirements, this additional capital will help us meet the unprecedented demand we have for our products and services,” Danny Pavisic, CEO of Unity Bank told Banking Day yesterday.
Unity Bank had $128 million in net assets as of June 2022, and a total capital ratio at the end of December of 14.9 per cent.
With around $1.5 billion in assets, Unity is the 16th-largest mutual bank in Australia.
“We received really strong support from a range of superannuation, corporate and professional investors, and increased the issue from the minimum of $15 million we were looking for,” Pavisic said.
With a heritage in credit unions that served the mining, energy and maritime and community sectors, Unity Bank may be prospering at a testing time, especially for smaller banks, of which there are scores in Australia (more than 100).
“We’ve had a record year of growth, record levels of profit,” Pavisic said.
“We’ve got growth coming all over the place.
“Our strategy, we call it niche markets. We share with our industry partners,” he said, thinking primarily of a range of trade unions and industry superannuation funds whose membership overlaps with Unity’s target market.
“We’ve got our points of difference”.
Pavisic said the once NSW-centric Unity Bank recently forged a strategic alliance with the Victorian Trades Hall Council, and backed this up by redeploying a senior executive (being a former CEO of Gosford Credit Union) as state manager in Victoria.
With net assets of $128 million 12 months ago, Unity receives a material uplift from the $27.5 million capital raise.
The comrades from Unity Bank mean to upset the apple cart more than most and don’t be surprised if one day they’re looking for more AT1 capital. Loads and loads one day (they might need it), and why not.