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Investors mispricing bank risks again

Christopher Joye

Coolabah Capital

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)


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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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