More bank offers coming
Investors can expect to see more banks offer subordinated unsecured debt securities this year, one adviser says, despite a Financial Markets Authority warning that they’re a complex instrument that might not be suitable for many investors.
Friday, 28 March 2014
by Susan Edmunds
ASB this week announced it would offer a rate of 6.65% until the 2019 call option date on its offer of unsubordinated debt securities, to raise up to $400 million.
The offer closes on April 15 and the notes will be issued at $1 each two days later. The notes are expected to be repaid on June 15, 2024.
The FMA warned that the offer was riskier than a bank deposit and the notes carried similar risks to buying shares in ASB but without the opportunity for growth. “If ASB or CBA experiences severe financial difficulties, the ASB Notes may be exchanged for ordinary shares of CBA or written off.”
It recommended people seek the advice of an independent financial adviser before deciding whether or not to invest.
But the offer seems to have appealed to a large number of investors.
Adviser Chris Lee said the notes had been extremely popular and he expected issues from all the main banks this year, as they looked to bolster their capital.
New Zealanders had strong faith in the banks, he said. Investors had little concern about the circumstances the FMA had outlined coming true.
He said many retail investors saw it as a bank product but at a better rate. “The banks have come through the last five years well and make pots of money.”
For a retired investor who until recently would have been lucky to have found anything paying as much as 5%, this sort of product would make a big difference to their income, he said. The S&P rating of BBB+ was quite high for a subordinated instrument and he expected it would raise the full $400 million.
“The corporate briefing attracted a packed audience of brokers and bankers, with many bank executives attending the function to learn what financial markets will require of these new issues and what approach ASB is taking. We expect that in 2014 there will be several such issues, effectively offering investors a choice for higher returns than previously was available regularly only from finance companies.”
The offer was oversubscribed and Lee said his firm only received about two-thirds of what it applied for, for its clients.
The ASB offer is tier two capital – Lee said he expected a tier one product could be offered by some banks that could pay another 100 basis points more again.
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