Bank Hybrids – what are they and why are they going?

Hybrid securities are one of the ways banks raise money from investors and in return investors receive interest payments which typically carry a franking credit.

As a result they have been a very popular investment with Australian retail investors over a long period of time.

However, APRA (Australia’s financial safety regulator) has always been somewhat uncomfortable with these investments in the hands of retail investors and SMSF’s given their complexity being made up of part equity and part debt.

As a result APRA has announced that they are removing Additional Tier 1bonds (i.e. bank hybrids) as a source of funding for the banks in an effort to make the banks safer – or so they say.

For retail holders this means that over the next few years access to these hybrid investments will be removed, so be careful and ‘will the last person out please turn off the lights’…..