Weekend Edition: Bank Hybrids. Just too complex?

NAB Morning Call

Friday 21st March 2025

Please note this communication is not a research report and has not been prepared by NAB Research analysts. Read the full disclaimer here.

APRA plans to phase out bank hybrids (AT1s) by January 2027. So, what exactly are AT1s and why is the regulator so concerned? In short, they are CoCos, contingent convertibles that transfer to equities when a bank capital’s capital falls below a tipping point. But do mum and dad investors understand the complexity of the offering and do the instruments adequately provide for their intended purpose? That’s APRA’s big concern, pointing to the Credit Suisse example where AT1 investors lost a lot of money.

Chris Joye from Coolabah Capital has been critical of the APRA decision. While initially he thought AT1s were too complex an instrument and there was an elegant simplicity in choosing between stocks and bonds, his position has changed. He now worries that some of the mum and dad investors could be driven to even riskier assets.

Chris is not one to hold back his opinions, which you’ll hear this week, but he also does a great job of explaining how this asset class works. Something you won’t be able to buy after next year.

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