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Rates round-up: June 25

S&P lowers Co-op Bank outlook; ANZ to repay bonds early; Five Star ‘shadow director' trial delayed

Monday, 25 June 2012

by Niko Kloeten

S&P lowers Co-op Bank outlook

Standard & Poor's has revised its outlook on The Co-operative Bank (formerly PSIS) to stable from positive, while affirming its 'BBB-/ A-3' issuer credit ratings.

Credit analyst Andrew Mayes said the revision "reflects weaker than anticipated developments in the bank's business franchise since its conversion to a mutual bank, and the implementation of its reinvigorated business and branding strategy."

He said the bank had struggled to build its member base in the past year, while its earnings continue to be constrained by a high operating cost base.

"Upward rating prospects could emerge if Co-op Bank were to demonstrate a track record of building its member base and business franchise while translating this to above system average business growth," Mayes said. 

"In our view, the bank will need to more actively compete on price if it is to generate new business in the future."

ANZ to repay bonds early

ANZ New Zealand is set to become the latest bank to ‘call' a subordinated bond issue as low interest rates and changes to prudential requirements encourage banks to offload them

The bonds, with a face value of $350 million, were issued in 2007 when interest rates were much higher than their current record low levels; they have an 8.23% coupon rate.

The company has written to bondholders saying it will call and repay the bonds on July 23, the day the coupon is due to reset.

ANZ could have reset the coupon at a much lower interest rate; it had the option of resetting for the next five years at 62 basis points above the five-year swap rate, which is sitting at about 3.3%.

However, under the Reserve Bank's impending Basel III capital adequacy rules this type of bond is expected to be regarded as debt rather than equity.

A number of banks have recently repaid callable bond issues early, including Kiwibank and the BNZ, which called $350 million of bonds while issuing $200 million of seven-year bonds at a coupon rate of 5.64%.

Five Star ‘shadow director' trial delayed

The trial of a man described by the Crown as a "shadow director" of the collapsed Five Star Consumer Finance has been put on hold by last-minute legal wrangling.

Neil Williams, a 78-year-old discharged bankrupt, was due to start his trial on Serious Fraud office charges last week.

However, the case has been delayed after the Crown applied for it to be heard by a judge alone on the basis of the alleged complexity of the evidence involved; Justice Patrick Keane has reserved his decision.

Meanwhile, former National Finance 2000 director Tony Banbrook has failed in his bid to be allowed out of the country for a holiday in Fiji despite pleading guilty to misleading investors.

Banbrook last week pleaded guilty in the High Court at Auckland to a Financial Markets Authority charge of signing a prospectus with an untrue statement.

When told to surrender his passport he said that he had a pre-booked holiday to Fiji, but Justice Mark Woolford ordered him to give up his passport anyway.

However, Banbrook has not been convicted as his lawyer plans to apply for him to be discharged without conviction, a prospect Justice Woolford described as "highly unlikely".

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