Head of Research, BondAdviser

Simon Fletcher

Head of Research

Australian bonds & fixed income research

BondAdviser

BondAdviser is the central reference point for intelligent information on Australian fixed income markets. We help you make informed decisions by providing unbiased research, transparent pricing data, analytics, portfolio tools and education.

BondAdviser has the broadest coverage of retail-accessible ASX-listed and over-the-counter Australian bonds and fixed income securities. We make it easy for you to review and compare investments before you place an order with your broker or dealer.

Credit

With the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the “Commission”) being unusually quiet recently following more reactionary and tabloid-friendly beginnings, we thought it might be a good time to consider what impact (currently) planned divestments by the major banks could have on hybrid valuations and risk.Although not directly prompted by the Commission, the pace and determination of Australia’s major banks to divest underperforming and/or potentially risky businesses that are not aligned to their repurposed domestic alignment has surely been more clearly focused by the inquiry.The impact that these actions could have on the majors’ hybrid instruments is a little tangential and revolves around the Volume Weighted Average Price (VWAP) that each hybrid is assigned at issuance (Issue Date VWAP) and which is generally based on the daily volume weighted average prices of ordinary shares in the preceding 20 trading days.  In the case of CBA’s PERLS X, an Issue Date VWAP of $74.5657 was calculated.  This article further explores only this instrument specifically but we note that most Australian bank hybrids will share many of the discussed features.

With the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the “Commission”) being unusually quiet recently following more reactionary and tabloid-friendly beginnings, we thought it might be a good time to consider what impact (currently) planned divestments by the major banks could have on hybrid valuations and risk.Although not directly prompted by the Commission, the pace and determination of Australia’s major banks to divest underperforming and/or potentially risky businesses that are not aligned to their repurposed domestic alignment has surely been more clearly focused by the inquiry.The impact that these actions could have on the majors’ hybrid instruments is a little tangential and revolves around the Volume Weighted Average Price (VWAP) that each hybrid is assigned at issuance (Issue Date VWAP) and which is generally based on the daily volume weighted average prices of ordinary shares in the preceding 20 trading days.  In the case of CBA’s PERLS X, an Issue Date VWAP of $74.5657 was calculated.  This article further explores only this instrument specifically but we note that most Australian bank hybrids will share many of the discussed features.

Will Major Bank Divestments Affect Hybrid Instruments?