The Australian Prudential Regulation Authority has told Bendigo and Adelaide Bank that it will not allow the bank to proceed with the acquisition of the units of a listed trust, Asset Backed Yield Trust.The trust is managed by Adelaide Managed Funds, a division of the bank. A spokesman for the bank said the regulator took the view that the bank was providing credit support for a fund whose responsible entity was a wholly owned subsidiary and which was holding securitised assets issued by the bank, and in the opinion of APRA a breach of prudential standard APS 120.APS 120, which covers securitisation, requires that an authorised deposit taking institution must not provide implicit support to a securitisation and must "stand clearly separate" from a securitisation. APRA was also concerned that the deal, involving a bank and its funds management subsidiary, was not being done on market terms.In February Bendigo & Adelaide said it planned to offer mandatory convertible preference shares in exchange for units in the fund.The pricing by Bendigo & Adelaide of the preference shares represented a 54.3 per cent premium over the one-month volume-weighted average price of the units prior to the announcement.The preference shares were to have had a coupon with a margin of 450 basis points over the bank bill swap rate.  Conversion to ordinary Bendigo & Adelaide shares was to have occurred within 12 months at a 2.5 per cent discount to the market price.Adelaide Bank, one of the predecessors of the bank, established the Asset Backed Yield Trust in 2006 to refinance loans previously originated or managed by Adelaide, including some loans refinancing on behalf of GE Capital.As of early 2009 the Asset Backed Yield Trust has a $185 million portfolio. The bulk of these assets securitised margin loans originated by another of the bank's subsidiaries, Leveraged Equities. Other assets include the remaining pool of securitised non-conforming mortgages owned in 2006, investment loans and medical finance.The bank had several objectives in making the acquisition. The issue of preference shares would increase its tier one capital position by $90 million.The assets are performing well and the bank would have been happy to have them on its balance sheet. And unit holders would have got a good price for an investment that has fallen out of favour.