Hybrids Of The Major Banks To Be Downgraded Again

In recent weeks we have written to our clients and to the media about our concerns about the proliferation of “equity hybrids”. Equity hybrids, as opposed to debt hybrids, are hybrid securities that we believe have a risk exposure akin to equities, not bonds due to the ability of banking regulators to force their conversion to equities without any ability of hybrid investors to control this outcome. More concerning is the fact that Australian investors have invested a total of $20 billion in these securities, including the recent $2.5bn CBA hybrid PERLS VII.

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