ANZ Perpetual Preference Shares

[Grimy]

Hi NZ Silver. If you look on page 2 of the NZDX forum/markets, have a look at the thread ANZ Capital Notes Issue March 2015 (either the whole thread or the last 2 or 3 pages) to see what has happened in the past and what people saw as pros and cons.
I have held ANBHB and currently hold ANBHC PPS and have applied for some ANBHD PPS today.
They are Tier 1 capital for the bank, so not bonds, although when things go to plan I feel personally that they can be used as/instead of bonds. You need to understand and be comfortable with the terms of the offer.
As I am in the investing for income stage I like the reasonable rate and the quarterly payments.
With covid the ANBHB ones were not repaid when expected (the RB instructed banks not to pay out on their capital), and I had to wait about 18 months past the expected repayment of capital date to get the principal sum back. Still got the quarterly payments, but the return dropped as after the first repayment date the % return was reset every 3 months from memory. But that was exceptional circumstances/times. If the repayment date had been a couple of months earlier, I would have had the capital returned when expected.
Generally, it seems the banks repay at the first reset date - in the case of ANBHD, that will be in 6 years.
I look at it that yes, the PPS rank behind pretty much everything/everyone else if the bank fails. But if the ANZ fails then we've probably got more to worry about anyway....
Once the government decides on a deposit guarantee scheme, then term deposits and bonds will be a much safer bet, but I'm comfortable with an allocation to Tier 1 capital PPS investments.

[Bjauck]

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Once the government decides on a deposit guarantee scheme, then term deposits and bonds will be a much safer bet, but I'm comfortable with an allocation to Tier 1 capital PPS investments.

Thanks for your post. Will the deposit guarantee scheme cover bonds as well as deposits?

[Lego_Man]

Thanks for your post. Will the deposit guarantee scheme cover bonds as well as deposits?

It won't. Top of the stack will be secured/covered bondholders, depositors, then senior unsecured bonds (most of the ones on issue). By the time you get to Tier 2 there is less chance of repayment, and AT1 basically no chance in a failure scenario. However a government bailout/recap might make whole the AT1 holders and not the regular equityholders.

[GTM 3442]

It won't. Top of the stack will be secured/covered bondholders, depositors, then senior unsecured bonds (most of the ones on issue). By the time you get to Tier 2 there is less chance of repayment, and AT1 basically no chance in a failure scenario. However a government bailout/recap might make whole the AT1 holders and not the regular equityholders.

As I understand it, back in the day the government guarantee as applied to South Canterbury Finance covered the plain vanilla Bonds but not the Perpetual Preference Shares.

This may set a precedent in the minds of those designing the current arrangement.

[Lego_Man]

As I understand it, back in the day the government guarantee as applied to South Canterbury Finance covered the plain vanilla Bonds but not the Perpetual Preference Shares.

This may set a precedent in the minds of those designing the current arrangement.

Quite a different scenario. Under the NZ Regs, the AT1 can only be touched if the bank has been effectively shuttered by the regulators. Quite unlikely in the case of our Big 4 banks which are much better regulated now, and i assume would benefit from unlimited liquidity support from the RBNZ in case of stress, as they have done in the not so distant past.

Bank sub debt and preferred stock are great investments in NZ. A lot of the positive economics of banks have been shifted from equity holders to bond holders with the current capital requirements and implied lower leverage.