The New Hybrid Risk Nobody Understands...
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)
Never miss an update
Enjoy this wire? Hit the ‘like’ button to let us know.
Stay up to date with my current content by
following me below and you’ll be notified every time I post a wire
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 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 Managers” based on his risk-adjusted performance throughout his career across. He previously worked for Goldman Sachs in London and Sydney, the Reserve Bank of Australia, and founded the award‐winning research/investment group, Rismark. He has regularly advised governments, developing unique policy proposals. Chris graduated with the University Medal (Economics & Finance) from Sydney University. He studied in the PhD program at Cambridge University in 2002/03, leaving to set up his funds business.
4 topics
1 stock mentioned
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 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...
Expertise
Chris co-founded Coolabah in 2011, which today runs over $8 billion with a team of 40 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...
Expertise
Comments
Comments
Sign In or Join Free to comment