Are Bank/hybrids safe?
How safe are the hybrids in the current environment.
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Answer
Hi Ilan,
Hybrids are safer than equities but not as safe as bonds or term deposits. One very important consideration for hybrids, is capital, and right now banks are in incredible shape from a capital position. The below chart shows the levels of capital held with APRA’s unquestionably strong level marked bythe red dotted line.
At the end of September, APRA released a discussion paper looking at the current structure of AT1 Hybrid securities, with a specific focus on how they absorb losses in times of stress. There are multiple parts to this and a lot of water to go under the bridge until something might change, however, Importantly, if any changes are ultimately made to the structure of hybrids to be issued in the future, existing hybrids on issue cannot have their terms altered. We wrote an article here on the topic.
chart
Bank capital Ratio’s – Source UBS Research
chart
Bank capital Ratio’s – Source UBS Research
