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Buying CBA's New Hybrid Perls VIII is Irrational Trade

Christopher Joye

Coolabah Capital

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
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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