ANZ Perpetual Preference Shares

[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.