ASIC alert on hybrid issues by banks

THE securities regulator is taking aim at the rush of hybrid share-and-debt issues by banks in recent weeks, amid concerns over the aggressive marketing of the instruments to retail investors.

THE securities regulator is taking aim at the rush of hybrid share-and-debt issues by banks in recent weeks, amid concerns over the aggressive marketing of the instruments to retail investors.

The Australian Securities and Investments Commission is planning to meet stockbrokers, banks and bank-aligned financial planners in coming weeks to remind them they need to highlight how the investments come with underlying risks.

"ASIC has concerns that hybrids are being pushed on investors without adequate explanation of the risks, or without adequate explanation that they are deeply subordinated, or that payments can be suspended," ASIC commissioner Peter Kell told BusinessDay.

"We think retail investors too often see the household name and they see something as secure and reliable without looking at the underlying product and the risks associated with it." Mr Kell was speaking on the sidelines of the Melbourne Financial Services Symposium.

The comments follow a flurry of hybrid and subordinated debt issues by the big banks in recent weeks. Westpac has become the latest bank to increase its hybrid share offer to $1 billion.

The move followed similar issues by Commonwealth Bank's wealth management arm Colonial, while ANZ also sold a bigger-than-expected $1.5 billion debt issue to investors amid strong demand for the offer.

Hybrid shares pay a set interest rate which usually tracks the price of debt and, after a set period, convert into ordinary shares.

The focus on hybrids comes amid a broader crackdown by ASIC in the marketing of financial products.

Other areas being targeted by the regulator include debentures, agribusiness and infrastructure investments. "This is an area where we don't want to see a repeat of the episode of the past few years where people were putting their money into products where they thought were low risk, but it turned out to be much higher," Mr Kell said.

He said the fast-growing self-managed superannuation funds sector was particularly vulnerable to aggressive marketing.

For Westpac, the hybrid issue is a capital management tool to help top up its tier-1 capital. It consists mostly of common equity or ordinary shares but there is room for hybrid shares to make up the rest.

Hybrid securities are often a more palatable form of capital raising for existing bank shareholders as they do not dilute profit or dividends across ordinary shares.