In a second column on hybrids today in The AFR I reveal a profound new risk embedded in these securities that I don't believe anybody understands (certainly none of the sophisticated investors or institutions I have raised this with were aware of it): that is, the potential for bank issuers of hybrids to be forced into (de facto) default on income payments to investors once their common equity tier one ratio (CET1) falls below 8%, NOT the 5.125% default (or conversion into ordinary equity) trigger that investors have historically focussed on. APRA has introduced a new rule into hybrids this year that means APRA garnishes (or restricts) 40% of all a bank's earnings once the CET1 ratio drops below 8% from being used to pay dividends, hybrid income payments or staff bonuses. The amount of earnings APRA restricts rises the further the CET1 ratio falls (eg, once CET1 drops below 7.125% APRA prevents the bank from using 60% of its earnings for equity or hybrid payments). Free (VIEW LINK)