The market is crowded with hybrid bank issues, following Westpac's launch yesterday of an issue of convertible preference shares. ANZ and Colonial launched subordinated note issues earlier in the week.Westpac is seeking a minimum of A$750 million. The preference shares should be priced at the higher end of the 320 to 350 basis points range for the margin applied to the bank bill rate to determine the dividend paid. The margin will be determined in the institutional book-build scheduled for February 23.The structure of the converting preference shares is very similar to ANZ's CPS3 issue completed last September. The Westpac CPS feature deferrable and non-cumulative dividends, and there is also the APRA-imposed common equity conversion trigger that could result in a capital loss to investors. The Australian Prudential Regulation Authority now requires all Tier 1 capital raised by banks to be capable of absorbing losses. The Westpac CPS qualify as non-innovative, residual Tier 1 capital.The "compensation" for investors taking this risk is the additional margin that will be used to determine the dividend to be paid. ANZ's CPS3 have a margin of 310 basis points. However, credit spreads in bond markets have widened considerably since September, and, it must be said, the margin being offered by Westpac does not reflect this, especially given the considerable risk involved.The non-cumulative dividends will be franked if Westpac has sufficient franking credits or, if not, will be grossed-up to reflect the benefit of franking. But the dividends will only be paid if the directors determine, at their discretion, that a dividend is payable and that the amount to be paid does not exceed distributable profits, and it is approved by APRA.If a dividend is not paid, then Westpac is prohibited from paying a dividend on its ordinary shares or buying back its ordinary shares. That this restriction applies only to Westpac's ordinary shares, shows how lowly ranked the CPS are in the bank's capital structure.CPS are deeply subordinated securities.   The perpetual CPS will be listed on the Australian Securities Exchange. If the CPS are not eventually converted into Westpac ordinary shares, transferred or redeemed, the ASX listing will allow investors to retrieve their capital.However, if it comes to that, they can be assured of a capital loss - just look at the current value of the various income securities issued by the banks in the late 1990s.Nevertheless, there are reasonable prospects for the CPS being converted into Westpac ordinary shares within a relatively short period of time. The scheduled conversion date is the end of March 2020 and there is also an early conversion date at the end of March 2018.But conversion will only occur if the conversion conditions are met, and, in the case of the early conversion date, only if APRA approves. Investors are warned not to expect approval from APRA.For the conversion conditions to be satisfied, Westpac's share price must not have fallen to 56 per cent, or less, of its value at the time of issuing the CPS, when it is