Bendigo and Adelaide Bank will pay about $130 million for Bank of Cyprus Australia, a 14-branch bank catering to Greek and Cypriot communities in NSW, Victoria and South Australia.
Bendigo aims to raise $120 million through the sale of new shares to fund the deal.
The regional lender has also booked a $95 million writedown on its margin lending business due to weak investor sentiment and market volatility.
Bank of Cyprus Australia is a subsidiary of Bank of Cyprus Group, which last month reported a loss of 801 million euros ($A1.06 billion) for the first nine months of the year.
Bendigo said the purchase would be a strategically complimentary addition to its network of 340 branches.
“It is predominantly funded by retail deposits, maintains a conservative risk profile with 99 per cent of the loan book secured against property, and has an excellent credit history,” managing director Mike Hirst said in a statement on Friday.
Bank of Cyprus Australia has interest bearing assets of $1.4 billion.
To fund the deal, Bendigo will issue new shares to institutional investors at a price of $8.45 per share.
Bendigo shares last traded at $9.00 before entering a trading halt ahead of the capital raising announcement.
Retail shareholders would be able to participate in a non-underwritten share purchase plan in early 2012.
Mr Hirst said Bendigo’s margin lending business was suffering from a reduced portfolio due to market volatility and a lack of investor appetite for risk.
The writedown will impact Bendigo’s statutory earnings, but not its first half cash earnings, which were forecast to be similar to those in the same period last year, Mr Hirst said.
“We remain convinced that margin loans are appropriate products, with a legitimate place in the investment portfolios of many of our customers,” he said.
“However, the impairment testing required under current accounting standards is prescriptive about how this goodwill should be accounted for, and we have therefore made this decision.
“Ironically, this write-down will provide a moderate boost to our ongoing return on equity.”
