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A new way to buy banks

Challenger's new endowment warrants allow investors to buy the big four Australian banks on hire purchase.

Thursday, November 15th 2001, 11:41PM

Fund management group Challenger has launched a new set of endowment warrants in New Zealand which will give investors access to the Big Four listed banks in Australia.

The warrants, which are listed on the Australian Stock Exchange, are held over ANZ, Commonwealth Bank (CBA), National Australia Bank (NAB) and Westpac.

Investors who use warrants are effectively buying shares on a hire purchase basis.

Challenger head of warrants Heidi Davies (pictured) says they are a good way of getting exposure to a defensive sector.

The warrants work this way. Investors make a down payment on the underlying shares by purchasing a warrant for about half the current share price. The balance is covered by a loan from the issuer.

During the life of the warrant dividends and any capital returns from the companies are used to pay off the balance.

At maturity, in February 2012, the ledger is squared up and the investor takes ownership of the shares. If cash flows from the shares have been high enough there will be nothing left to pay, alternatively a final payment may have to be made.

The interest rate used on the warrants is the 90 day bank bill swap rate plus a margin of 2.5%.

This is a better rate than that used in previous endowment warrants as Challenger is now the issuer reducing one of the parties in the process.

Davies says while the bank endowment warrants are essentially a leveraged equity investment, they are more simple than margin lending. One of the benefits is that the loan is built into the warrants and there are no margin calls.

Davies says the warrants are a cheap way to get exposure to a core sector. She says they are particularly attractive as the prices of the Big Four are already quite high.

Bank of New Zealand parent National Australia Bank closed at A$32.48 yesterday, Westpac finished at A$16.48, ASB Bank's parent CBA was A$29.85 and ANZ A$18.49.

She says people who already own the bank shares might want to consider selling the shares and moving their exposure to warrants. This would allow them to free up cash to invest elsewhere.

Davies says this series of warrants are based on the US model, as opposed to the European one. They can be exercised any time (rather than just at maturity) and the warrants are fully covered, meaning that for each warrant purchased there is one underlying share held in trust for the investor.

Challenger is looking to sell A$40 mill worth of warrants. The offer has been open for a couple of months in Australia and is already 25% full.

Davies expects the offer will be fully subscribed before its close off date which is September 16, 2002.

Check out the prices of the warrants in the Markets section of Good Returns HERE.

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Lender Flt 1yr 2yr 3yr
AMP Home Loans 6.49 5.69 6.29 6.40
AMP Home Loans $200k+ 6.39 5.59 5.99 6.30
AMP Home Loans LVR <80% - - 5.99 -
ANZ 5.99 5.85 6.49 6.85
ANZ LVR > 80 5.99 6.35 6.99 7.35
ANZ Special - - 5.95 -
ASB Bank 6.00 5.85 6.49 6.85
ASB Bank Special - - - -
BankDirect 6.00 5.85 6.49 6.85
BankDirect Special - - - -
BNZ - Classic - - 5.95 -
Lender Flt 1yr 2yr 3yr
BNZ - GlobalPlus 6.19 5.85 6.29 6.29
BNZ - Mortgage One 6.60 - - -
BNZ - Rapid Repay 6.19 - - -
BNZ - Std, FlyBuys 6.19 5.85 6.29 6.29
BNZ - TotalMoney 5.99 - - -
Credit Union Auckland 6.20 - - -
Credit Union Baywide 5.85 5.90 6.50 -
Credit Union North 6.45 - - -
Credit Union South 5.75 - - -
eMortgage 6.04 6.15 6.69 7.19
Fidelity Life 5.70 5.40 6.00 -
Lender Flt 1yr 2yr 3yr
Finance Direct 6.10 6.45 6.69 7.10
First Credit Union 6.45 - - -
General Finance 5.95 6.25 6.50 7.10
HBS Bank 5.90 5.60 5.99 6.35
HBS LVR > 80% - - - -
Heartland 5.95 6.25 6.50 7.10
Heretaunga Building Society 5.75 5.50 6.30 -
Housing NZ Corp 5.75 5.50 6.30 6.40
HSBC Premier 6.24 5.59 6.29 6.55
HSBC Premier LVR > 80% - - - -
HSBC Special - - 5.79 -
Lender Flt 1yr 2yr 3yr
Kiwibank 5.90 ▲5.85 ▲6.19 ▲6.60
Kiwibank - Capped 5.65 6.50 - -
Kiwibank - Offset 5.60 - - -
Kiwibank LVR > 80% - - 6.29 6.40
Liberty 5.64 - - -
Napier Building Society 5.80 6.00 6.70 -
Nelson Building Society 6.45 5.95 6.60 -
NZ Home Loans 6.10 5.69 6.29 6.60
Perpetual Trust 7.70 - - -
RESIMAC - lo doc 7.34 7.14 7.49 8.05
RESIMAC LVR < 80% 5.84 5.64 5.99 6.55
Lender Flt 1yr 2yr 3yr
RESIMAC LVR < 85% 6.84 6.64 6.99 7.55
RESIMAC LVR < 90% 7.84 7.64 7.99 8.55
SBS Bank 5.90 5.60 5.99 6.35
SBS LVR < 80% - - - -
Silver Fern 5.95 6.10 6.55 7.05
Southern Cross 5.95 6.25 6.50 7.10
Sovereign 6.10 5.85 6.49 6.85
Sovereign Special - - - -
The Co-operative Bank 5.95 5.65 5.99 6.35
TSB Bank 6.04 5.40 5.99 6.40
Wairarapa Building Society 6.20 5.75 5.95 -
Lender Flt 1yr 2yr 3yr
Westpac 5.74 5.85 5.95 6.85
Westpac - Capped rates - 6.19 6.69 -
Westpac - Offset 5.74 - - -
Median 6.00 5.85 6.29 6.85

Last updated: 22 April 2014 9:04am

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