Thursday 17 March 2016 by Trade opportunities

Westpac, Rabobank and ANZ USD sub-debt added to the DirectBond list


Four new subordinated bonds have been added to the DirectBond list: an ANZ USD fixed rate note, a Westpac fixed and floater, and a Rabobank floating rate note

Stone bank building

Over the past few weeks we have added a number of subordinated bonds to the wholesale DirectBond list. All bonds are investment grade except MyState Bank and are from well known financial institutions. The bonds are all ’new style’ or Basel III compliant subordinated debt which contain a point of non-viability clause. For further information on the difference between ‘new style’ and ‘old style’ subordinated debt, please click here.

Subordinated debt (also known as Tier 2 capital) ranks below senior unsecured debt but above Tier 1 hybrid securities in the capital structure. Unlike Tier 1 hybrids, subordinated bonds must have a legal maturity date. Interest payments are for the main part mandatory and in the unlikely event that the financial institution in question is able to defer an interest payment, any missed payments are cumulative, also unlike Tier 1 hybrids.

Recent moves by APRA to push Australian banks to improve their capital positions, particularly via further equity raisings, has increased the buffer below subordinated debt and significantly improved the risk reward parameters of these instruments.

The following table details the list of available subordinated debt from banks and insurers. Sub-debt offered by insurers differs in its structure so please consult the linked factsheets for details*. The majority of the bonds listed are in AUD with the exception of the ANZ 19 March 2024 which is offered in USD. All ‘regional banks’ below are APRA regulated Authorised Deposit Taking Institutions (ADIs). You can click on the name of the institution to open the factsheet. 

*It is important to note that factsheets are a summary document only and do not constitute as full research.

Coupon Call date Maturity date Yield to call Income/
Running yield
 Suncorp (AAI Ltd) Floating+3.30% 18/11/2020 18/11/2040 5.24% 5.47%
 Insurance Australia Ltd (IAL) Floating+2.80% 19/03/2019 19/03/2040 4.65% 5.11%
 Genworth Financial Mortgage** Floating+3.50% 3/07/2020 3/07/2025 6.46% 5.96%
Major bank
 ANZ Banking Group Ltd Floating+1.93% 25/06/2019 25/06/2024 4.66% 4.36%
 ANZ Banking Group Ltd Floating+2.70% 17/05/2021 17/05/2026 4.97% 4.94%
 ANZ Banking Group Ltd USD*** Fixed 4.50% Bullet 19/03/2024 4.26% 4.43%
 Westpac Banking Corp**** Floating+2.05% 14/03/2019 14/03/2024 4.50% 4.42%
 Westpac Banking Corp**** Floating+3.10% 10/03/2021 10/03/2026 5.00% 5.30%
 Rabobank Fixed 5.00% 2/07/2020 2/07/2025 4.60% 4.92%
 Rabobank Floating+2.50% 2/07/2020 2/07/2025 5.04% 4.86%
Regional bank
 Bendigo and Adelaide Bank Ltd Floating+2.80% 29/01/2019 29/01/2024 4.80% 5.06%
 Members Equity Bank Pty Ltd Floating+2.70% 29/08/2019 29/08/2024 5.44% 5.06%
 MyState Bank Ltd Floating+5.00% 14/08/2020 14/08/2025 6.47% 7.03%
 Heritage Bank Limited Floating+3.50% 24/06/2020 24/06/2025 5.76% 5.84%
Rabobank Fixed 5.00% 2/07/2020 2/07/2025 4.60% 4.92%
Rabobank Floating+2.50% 2/07/2020 2/07/2025 5.04% 4.86%

Please note the bonds listed are available to wholesale investors only, with minimum $10,000 face value parcels unless otherwise specified.
**First AUD10,000, then in AUD1,000 denominations
***First USD200,000, then in USD1,000 denominations
****First AUD100,000, then in AUD100,000 denominations

The following chart details the comparative yield to call of all the AUD subordinated bonds.

Available AUD subdebt bonds relative value chart

I think Members Equity and Heritage bank offer good relative value, for those comfortable taking the additional risk of a regional compared to a major bank. However the major bank subordinated bonds we have available also offer an attractive return for solid investment grade paper.

MyState and Genworth are outliers. MyState is the only sub investment grade bond in the offering while Lenders’ Mortgage Insurer (LMI) Genworth faces risks from loss of major contracts, and hence the greater spreads.

Please contact your FIIG representative for more information.