In The Australian Financial Review I explain that while CBA's new hybrid "Perls VIII" looks appealing compared to the dividend yield on CBA's ordinary shares, it is yet another dud deal: the minimum 5.2% margin offered on Perls VIII is lower than the margin available on 6 other major bank hybrids with shorter first call dates and therefore less repayment risk (normally new deals provide investors with an extra margin kicker); and the total expected yield of 7.5% is way below the ~11.3%-11.4% dividend yields investors can access on ANZ and NAB shares. Investors only need to consider the performance of CBA's Perls VII, which has inflicted capital losses of ~14.5% on the original investors, or CBA's Perls III, which massively underperformed CBA's ordinary shares even if you bought the latter prior to its 60% draw-down during the GFC, to understand why this preferred equity instrument gives you debt-like returns with equity risks. Read for free here (VIEW LINK)
Christopher Joye is Co-Chief Investment Officer of Coolabah Capital Investments, which is a leading active credit manager that runs over $2.2 billion in short-term fixed-income strategies. He is also a Contributing Editor with The AFR.