If you’re considering the Westpac Capital Notes 4 or NAB Capital Notes 2 offers, take a moment to consider whose welfare management has in mind. The golden rule for any board of directors is that it must act in the best interest of the company’s common shareholders. By law, a bank’s management cannot issue securities that don’t benefit the shareholders – and what’s good for them usually isn’t great for other security holders higher up in the capital structure. Make no mistake: hybrid securities were invented to reduce the bank’s financing costs and risk, not to make you rich. The 4.9–5.1% margin that both Westpac (ASX: WBC) and NAB (ASX: NAB) are offering above the bank bill rate (currently 1.99%) looks attractive relative to what you are getting on cash and better than most recent hybrid issues. Nonetheless, it’s still poor compensation for the risk.
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