Bank Hybrid replacement
Hi James, I hope the break was refreshing. As Bank Hybrids are being phased out, what is MM's preferred alternative investment for the future for retirees? I can see no comparable direct alternative. Tier 2 Subordinated Debt is a poor substitute in my view. It is a wholesale product not available to retail investors for direct investment. The only way of buying Tier 2 Debt is via limited fund options such as ETFS or Managed Funds. Neither appeal to me. Further, the spread on Bank Hybrids returned an average of 2.9 bps over recent transactions compared with Tier 2 lower at 100 bps on average 1.9 bps. Bank Stocks are also not an option for me as a replacement, as a retiree. Why - The Risk to my portfolio would be far greater and Volatility of Bank share prices over the past 5 years, has been four times greater then Hybrids. The Yield on Bank Hybrids has been on average 6.3% compared with major Bank Dividend Yields of 4.0%. A significant shortfall in income cash flow! APRA has created a major problem for Australian Retirees in banning major Bank Hybrids. Our situation is entirely different to the Credit Swiss debacle in Europe which triggered this mess. Major Australian Banks are far safer and controlled than EU counterparts. So what are MM's replacements for equal Risk and Returns to Bank Hybrids? I appreciate the question may not have an answer.
