ANZ Capital Notes Issue March 2015

[BIRMANBOY]

I have placed an order too..feeling optimistic about ANZ and after 30 years of dealings they have never let me down yet. However just a few implements out of the family silver drawer as too much in one place just makes issuers complacent.

[iceman]

I've have been thinking about this one. Talked to ANZ and they offered me a 5 year fixed mortgage at 4.99% so am thinking of taking a couple of hundie to invest in this. Small risk and easy money in my view !

I have placed an order too..feeling optimistic about ANZ and after 30 years of dealings they have never let me down yet. However just a few implements out of the family silver drawer as too much in one place just makes issuers complacent.

[BIRMANBOY]

Personally I would never borrow to invest but I'm an old fuddy duddy and may well be an idiot.....a lot of differing views on this idea in thread on "investment strategies...folly or fortitude. Bottom line is we are all responsible for our own decisions. I am investing in these because I had sold down some of my other bonds since I thought interest rates may have been going up. I guess as long as you are not sinking all of your trust in one product its fine but a wide spread of investments always seemed like a good idea to me.

I've have been thinking about this one. Talked to ANZ and they offered me a 5 year fixed mortgage at 4.99% so am thinking of taking a couple of hundie to invest in this. Small risk and easy money in my view !

[iceman]

I am like you BB, have never borrowed to invest other than in rental properties. Probably won't do it this time either but just thought it was interesting that ANZ offered to lend me money at 4.99% to invest with them at 7.20%

Personally I would never borrow to invest but I'm an old fuddy duddy and may well be an idiot.....a lot of differing views on this idea in thread on "investment strategies...folly or fortitude. Bottom line is we are all responsible for our own decisions. I am investing in these because I had sold down some of my other bonds since I thought interest rates may have been going up. I guess as long as you are not sinking all of your trust in one product its fine but a wide spread of investments always seemed like a good idea to me.

[Beagle]

I am like you BB, have never borrowed to invest other than in rental properties. Probably won't do it this time either but just thought it was interesting that ANZ offered to lend me money at 4.99% to invest with them at 7.20%

I can see why this would be a perplexing situation for many and for others it would seem like easy money, which on the face of it, it is.
Let's ramp it up to illustrate my points better. Suppose you're debt free and have a lovely home in Nelson worth say $700,000 and the bank offered to lend you $500,000 to invest in these Basil 3 capital compliant loss absorbing deeply subordinated unsecured financial instruments. Suppose also you're in a good paying job and / or business and all is well for the average Joe Bloggs. Joe and his Mrs think this is the easiest 2.2% return they'll ever make and will earn $11,000 before tax for nothing right ? WRONG.

1. You are trading the security of your debt free family home for "a risk" to make that $11,000 per annum before tax, $7,370 per annum after 33% tax.
2. You are moving from a completely risk free, (assuming you're living in a part of Nelson that doesn't flood) totally secure position in your home which provides long term security for you, your wife and your children to a psotion where you're exposing them to risk.

So what's the risks ?

1. Debt servicing Risk. Well ANZ in certain circumstances don't have to pay interest on these and its non cumulating and they wouldn't if there was a serious "event". You however would still be required to pay your interest at $25,000 per annum and while this probably wouldn't greatly affect you it would smash many families budget to bits.

2. Capital Risk. They're loss absorbing so in the event of a crisis at any time over the entire life of this financial instrument, (read GFC Mk2), if in the Reserve bank of Australia's opinion it was necessary for the bank to give its shareholders "a haircut" you could see a substantial portion of your investment obliterated but of course you'd still be left holding the baby on your full $500,000 mortgage. If you got a 40% haircut, ($200k of your $500K gone, it would make the circa $7.5K per annum after tax return, look a bit silly wouldn't it !!

Now I know you're a bright and likeable guy and have your head screwed on well and truly and have a range of other quality investments and wouldn't be so silly as to do this to a level of half a mil so the above is purely for illustrative purposes for others to understand the risks, fully.

There's no free lunches in the investment world even when it appears there are !!

Now on the other hand if one were to say, yes there's risk here (as in any capital investment), but lets borrow that $200K and invest in more HNZ shares which will give better dividends and in all likelyhood dividend growth each yearand capital appreciation I think there's a far better case to be made for that sort of investment being better on a risk / reward basis, e.g. your investment could easily double (as you know it does with that company), in value in 5 years and you're being pretty well compensated for the risk involved.

Disc This poster thought he was clever and decided to partake of what appeared to be a free lunch and did what you're proposing to do on a fixed interest product prior to the GFC and got his fingers burned...once bitten twice shy !! My hair is greyer than yours mate so I just thought I'd share some of that hard learned wisdom.

[BIRMANBOY]

Fine until the second to last paragraph....HNZ has been around a couple of years and lets face it looks ok but has no real track record or history like ANZ....Yes it MAY show capital appreciation and it MAY keep giving dividends but there is no guarantee on that continuing...its a minnow and a new minnow..I certainly wouldn't be borrowing against my house on THAT either. Caveat emptor. on everything anywhere...and forever.

I can see why this would be a perplexing situation for many and for others it would seem like easy money, which on the face of it, it is.
Let's ramp it up to illustrate my points better. Suppose you're debt free and have a lovely home in Nelson worth say $700,000 and the bank offered to lend you $500,000 to invest in these Basil 3 capital compliant loss absorbing deeply subordinated unsecured financial instruments. Suppose also you're in a good paying job and / or business and all is well for the average Joe Bloggs. Joe and his Mrs think this is the easiest 2.2% return they'll ever make and will earn $11,000 before tax for nothing right ? WRONG.

1. You are trading the security of your debt free family home for "a risk" to make that $11,000 per annum before tax, $7,370 per annum after 33% tax.
2. You are moving from a completely risk free, (assuming you're living in a part of Nelson that doesn't flood) totally secure position in your home which provides long term security for you, your wife and your children to a psotion where you're exposing them to risk.

So what's the risks ?

1. Debt servicing Risk. Well ANZ in certain circumstances don't have to pay interest on these and its non cumulating and they wouldn't if there was a serious "event". You however would still be required to pay your interest at $25,000 per annum and while this probably wouldn't greatly affect you it would smash many families budget to bits.

2. Capital Risk. They're loss absorbing so in the event of a crisis at any time over the entire life of this financial instrument, (read GFC Mk2), if in the Reserve bank of Australia's opinion it was necessary for the bank to give its shareholders "a haircut" you could see a substantial portion of your investment obliterated but of course you'd still be left holding the baby on your full $500,000 mortgage. If you got a 40% haircut, ($200k of your $500K gone, it would make the circa $7.5K per annum after tax return, look a bit silly wouldn't it !!

Now I know you're a bright and likeable guy and have your head screwed on well and truly and have a range of other quality investments and wouldn't be so silly as to do this to a level of half a mil so the above is purely for illustrative purposes for others to understand the risks, fully.

There's no free lunches in the investment world even when it appears there are !!

Now on the other hand if one were to say, yes there's risk here (as in any capital investment), but lets borrow that $200K and invest in more HNZ shares which will give better dividends and in all likelyhood dividend growth each yearand capital appreciation I think there's a far better case to be made for that sort of investment being better on a risk / reward basis, e.g. your investment could easily double (as you know it does with that company), in value in 5 years and you're being pretty well compensated for the risk involved.

Disc This poster thought he was clever and decided to partake of what appeared to be a free lunch and did what you're proposing to do on a fixed interest product prior to the GFC and got his fingers burned...once bitten twice shy !! My hair is greyer than yours mate so I just thought I'd share some of that hard learned wisdom.

[winner69]

Interesting article

Things may have changed?

Mind you punters still like them - the 7.2% ANZ jobs are yielding 4% odd if you buy them today


http://www.interest.co.nz/personal-f...ies-issue-same

[Beagle]

Interesting article

Things may have changed?

Mind you punters still like them - the 7.2% ANZ jobs are yielding 4% odd if you buy them today


http://www.interest.co.nz/personal-f...ies-issue-same

This is absolutely crazy. Do people not realise that as a Tier 2 capital note these in tandem with shares are first cab off the rank when it comes to the Reserve Bank's open bank resolution ?
Are people unaware that the ANZ bank has had the sharpest fall in its ordinary SP of any of the major Aussie banks and that they have MASSIVE exposure to the mining and dairy sectors with many of their customers unable to pay their bills ?

I thought these things were stupid at the issue price...at 4% that is a completely ludicrous situation IMO most especially in light of what is a pretty serious correction in banking shares globally. Have grannies and orphans really had the risk explained to them properly ????? or is this the next Credit Sails situation where people sue the bank for misrepresenting the risks involved ?

[BIRMANBOY]

It would appear that you have fallen into the trap of assuming that the SP somehow is a valid indicator of a company's worth and viability and then further compounded this by making a grandiose statement "that they have MASSIVE exposure to the mining and dairy sectors with many of their customers unable to pay their bills ?".. what's the question mark for? Not quite sure of the facts so covering your nether regions? "MASSIVE" implies a dangerously large amount...where are you getting that information from? Or is it a hypothetical adjective based on your assumption that (A) mining sector has been suffering generally so therefore a majority of this sector are at the bankruptcy level...and /or (B) that the ANZ is more affected by this than Westpac or ASB etc. AND that if this is the case that they have somehow managed to hide this from everybody...except you of course. LOL A lot of stocks and shares have had their SP drop...this happens all the time and is normal. Why is it normal? Because people of similar ilk jump on and off based on emotion and the latest market sentiment. Seen it all before and no doubt will see it all again. If holders of these bonds knew anything they would be selling...appears not...so falls upon you to warn us all. Thanks. If you could back up your statement with some cold hard evidence would certainly be interested but hyperbole and panic doesn't convince me.

This is absolutely crazy. Do people not realise that as a Tier 2 capital note these in tandem with shares are first cab off the rank when it comes to the Reserve Bank's open bank resolution ?
Are people unaware that the ANZ bank has had the sharpest fall in its ordinary SP of any of the major Aussie banks and that they have MASSIVE exposure to the mining and dairy sectors with many of their customers unable to pay their bills ?

I thought these things were stupid at the issue price...at 4% that is a completely ludicrous situation IMO most especially in light of what is a pretty serious correction in banking shares globally. Have grannies and orphans really had the risk explained to them properly ????? or is this the next Credit Sails situation where people sue the bank for misrepresenting the risks involved ?

[winner69]

It would appear that you have fallen into the trap of assuming that the SP somehow is a valid indicator of a company's worth and viability and then further compounded this by making a grandiose statement "that they have MASSIVE exposure to the mining and dairy sectors with many of their customers unable to pay their bills ?".. what's the question mark for? Not quite sure of the facts so covering your nether regions? "MASSIVE" implies a dangerously large amount...where are you getting that information from? Or is it a hypothetical adjective based on your assumption that (A) mining sector has been suffering generally so therefore a majority of this sector are at the bankruptcy level...and /or (B) that the ANZ is more affected by this than Westpac or ASB etc. AND that if this is the case that they have somehow managed to hide this from everybody...except you of course. LOL A lot of stocks and shares have had their SP drop...this happens all the time and is normal. Why is it normal? Because people of similar ilk jump on and off based on emotion and the latest market sentiment. Seen it all before and no doubt will see it all again. If holders of these bonds knew anything they would be selling...appears not...so falls upon you to warn us all. Thanks. If you could back up your statement with some cold hard evidence would certainly be interested but hyperbole and panic doesn't convince me.

Hi Birman - woken up from your nap - good for cats to snooze through a warm lazy summer?

Suppose if ANZ have suspended your interest payments and you have become the proud owner of tens of thousands of cheap ANZ shares we ALL will have many other things on our mind.

But why worry as Mark Knopfler said there should be sunshine after rain / these things have always been the same / so why worry now