Investors mispricing bank risks again

My column this week in The Australian Financial Review explaining a new and previously overlooked risk in bank hybrids in which there may be income payment default if a bank's equity capital ratio falls below the relatively high level of 8%---way above the 5.125% default threshold that hybrid investors have previously assumed was a practical impossibility---naturally resulted in some hyperbolic and optimistically dismissive reactions from those with a vested interest in the sector. In today's column I reiterate my view that ANZ's proposed 2024 hybrid deal looks quite cheap (I am a buyer) based on extended curve analysis including ANZ's new 2026 US dollar hybrid and address the flurry of responses my mid-week research prompted. The short-story is if a major bank loses money during a recession, which is entirely possible, and CET1 goes materially below 8%, your hybrid payments may stop...Free (VIEW LINK)