National Australia Bank has launched the biggest corporate capital raising in the country's history as it looks to finally shed its troubled UK business and get the jump on regulators.
NAB is looking to raise $5.5 billion through an entitlement offer so it can spin off its UK subsidiary Clydesdale Bank in a public share market float.
UK regulators have told NAB it needs to inject another STG1.7 billion ($A3.25 billion) into Clydesdale, to cover any future potential losses linked to past problems with the lender, before an initial public offering can go ahead.
NAB shareholders will be issued with Clydesdale shares through the demerger and will hold between 70 and 80 per cent of the UK company after the float, with the remained sold to institutional investors.
It will also use the money raised to lift its own capital reserves, ahead of an expected move from the Australian Prudential Regulation Authority to make banks increase their cash reserves.
The unprecedented size of NAB's capital raising caught investors and analysts off-guard and overshadowed the bank's first half results, which showed a 5.4 per cent increase in cash profit to $3.32 billion.
"You're talking about the entire amount of money that was raised in the Medibank Private float, it's a huge raising," IG market strategist Evan Lucas said.
Mr Lucas said NAB was unlikely to have trouble carrying out the raising, despite its size, though it would deliver a significant blow to its share price.
NAB shares have been placed in a trading halt until Tuesday while it carries out the entitlement offer.
Chief executive Andrew Thorburn has made disposing of Clydesdale, which has been a drag on NAB's performance for years, a priority since ascending to the bank's top job in August.
He said the demerger, along with the recent float of NAB's US subsidiary Great Western Bancorp would allow the bank to focus on its core Australian and New Zealand operations.
"We are drawing a line under our legacy assets," he said.
The capital raising will see NAB issue around 194 million shares at $28.50 each, which is around 19 per cent below NAB's closing price on Wednesday.
Mr Thorburn said the entitlement offer will lift NAB's equity ratio to around 10 per cent, which is above that of the other major banks, pre-empting an expected move from APRA and giving the bank greater ability to fund its growth.
"Given the inevitability that, at some point, there is going to be further regulatory requirements, we've decided to just get out and take a confident, decisive step," he said.
"I think that takes that issue off the table for us and positions us for the future."
Meanwhile, NAB disappointed investors by keeping its interim dividend unchanged at 99 cents and signalled shareholders could expect the exact same payout for the second half.
The bank also announced former federal Treasury secretary Ken Henry will succeed outgoing chairman Michael Chaney, who will retire in December.
NAB'S SOLID FIRST HALF
* Cash profit of $3.32b, up 5.4pct from $3.15b in 2014/15
* Net profit of $3.44b, up 20pct from $2.86b
* Interim dividend of 99 cents, unchanged
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