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FMA warns on bank notes

Consumers are being warned to make sure they know what they’re doing if they invest in bank capital notes.

Friday, 24 April 2015

A number of issues have taken place over recent months, including Kiwibank’s perpetual capital notes and ASB’s unsubordinated debt securities. In the past 12 months, about $1 billion has been raised through bank capital notes in New Zealand.

Advisers suggested it was likely more banks would issue notes as they looked to bolster their capital. 

The FMA said it had noticed the increase in the number of banks offering capital notes but consumers needed to be sure they understood what they were investing in.

"These types of products are not like a bank term deposit. We want to ensure consumers are not just basing their investment decisions on an advertised high interest rate and the fact that a household name is offering them,” said the FMA’s director of primary markets and investor resources, Simone Robbers.

“If consumers don’t understand how capital notes work they may end up holding shares in a bank that have little or no value, when they thought they were buying a bond with a fixed interest rate. Even more sophisticated investors can find these complex and potentially risky products difficult to assess,” she said.

Robbers said the notes were deliberately designed with features that gave banks flexibility over their payments.  Payments customers received could be unpredictable. Banks were generally allowed to stop paying interest or reduce the interest they paid.

She said consumers needed to know that although bank notes were often listed on the NZX, it did not mean they would be able to sell their notes quickly, or at all.

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Cash PIE Rates
Institution Rate 30% 33%
ANZ 0.10 0.10 0.11
ASB Bank 0.40 0.41 0.42
ASB Bank 0.55 0.59 0.56
ASB Bank 0.60 0.61 0.64
ASB Bank 0.65 0.66 0.69
ASB Bank 0.70 0.72 0.75
BNZ 0.10 0.10 0.10
Heartland Bank 2.25 2.59 2.70
Kiwibank 0.75 0.77 0.88
Kiwibank 1.75 1.81 1.89
Nelson Building Society 3.75 3.90 4.08
RaboDirect 1.50 1.55 1.62
SBS Bank 1.80 1.86 1.94
TSB Bank 1.60 1.64 1.71
Westpac 0.35 0.36 0.38
Westpac 0.05 0.05 0.05
Westpac 2.60 2.67 2.79

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