Hybrid tinkering at ANZ

ANZ yesterday launched an issue of converting preference shares, aiming to raise $750 million of new capital.

The bank expects that its Tier 1 capital ratio will be 9.6 per cent if it reaches its target. At the end of September, ANZ had a Tier 1 ratio of 10.6 per cent but subsequent events have cut into that ratio.

The purchase of Asian assets from RBS will increase risk-weighted assets by $6.4 billion. The purchase of the outstanding 51 per cent of ING Australia and ING New Zealand will increase Tier 1 deductions by $1.9 billion.

And last week the bank issued a notice to redeem US$350 million of US Trust Securities with the effect that from the date of the notice the securities no longer constitute Tier 1 capital.

APRA has confirmed that CPS2 will be treated as non-innovative residual Tier 1 capital.

The CPS2 preference shares, which are expected to commence trading on the Australian Stock Exchange on December 18, will pay a floating rate, with the margin over the bank bill swap rate expected to be between 3.1 and 3.3 per cent.

Dividends are preferred and non-cumulative. The securities will rank ahead of ordinary shares for dividends but behind depositors and other creditors. The dividends are expected to be fully franked.

Standard & Poor's has indicated that it will rate CPS2 A+ upon issue. The securities are not government guaranteed.

The securities are perpetual, subject to mandatory conversion. Holders will receive ordinary shares in December 2016 unless mandatory conversion conditions are not satisfied.