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Beware the bank bond offers

Banks are no longer competing aggressively for term deposit money as they have largely rebuilt their balance sheets following regulatory changes stemming rom the GFC.

Wednesday, June 4th 2014, 6:19AM 2 Comments

Grosvenor Financial Services chief investment officer David Beattie said banks were no longer reliant on building the retail deposit base.

However, he warns about the new wave of corporate bonds being offered to investors and was particularly critical of Kiwibank’s recent subordinated bond offer.

The offer, made by bank subsidiary Kiwi Capital Funding, aimed to raise $100 million.

The bonds will pay a 6.61% a year for the first five years until the reset date in July 2019.

Beattie told delegates at the recent SiFA financial advisers conference, that the with a Standard and Poor’s rating of BB+ these were sub-investment grade bonds and the interest being paid was way too low.

A recent bond offer by ASB had a rating three notches higher than Kiwi Capital yet the difference in interest rate was just 25 basis points.

The Kiwi Capital offer should have been priced 125 basis points higher than ASB, he said.

Beattie warned people to be careful. “This is just the thin end of the wedge.”

Markets have been there before, he noted, and he reminded delegates of what happened with the CDO offers before the GFC.

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Comments from our readers

On 5 June 2014 at 8:37 am alan papert said:
100% agreed what is worse is that some of these issues give the banks the ability to convert all or some of the holdding to equity in times of need. Why take a recent bank bond when if you shop around the 5 yr TD rate is almost the same with far less risk!!
On 5 June 2014 at 10:57 am Rainmaker said:
There is probably a good reason for this. ASB did not accept the Crown Wholesale Guarantee when it was offered(correct me if I'm wrong)

From the press:

"Although the scheme was closed on April 30, 2010, bank debt issued under it continues to carry a taxpayer guarantee until it matures, with the last of this - US$71 million from ANZ - not due to mature until November 19, 2014. That's just after a taxpayer guaranteed A$250 million Kiwibank debt issue, the state owned bank's only issue under the Wholesale Guarantee Scheme, matures on October 20, 2014."



http://www.treasury.govt.nz/economy/guarantee/pdfs/wfgf-kiwi-deed.pdf




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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.15 ▼4.04 4.49
ANZ Special - 3.65 ▼3.54 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.54 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 ▼3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 ▼3.54 3.99
Median 5.35 4.15 4.09 4.19

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