A probe into the effectiveness of the scheme post-Credit Suisse “results in greater risk of surplus capital not being returned to shareholders”, analysts say.
The total wipeout of Credit Suisse hybrids has raised alarms at APRA over the effects such an event could have in Australia.As the banks’ net interest margins recede, Mr Khan said, the “silver lining” for investors was the prospect of share buybacks or increased dividends, given the excess cash these institutions hold.APRA requires that banks hold enough easily accessible capital such as cash, stock or retained earnings – also known as tier 1 capital – equal to 4.
“The Australian market for [hybrids] is also unusual by global standards, with more than half the bonds held by small retail investors,” Ms McCarthy Hockey said. “Converting their investments into equity or writing them off could undermine confidence in the financial system.”Mr Khan said the rhetoric from APRA “provides another reason for bank boards to be conservative with regard to capital management”.
“In the worst-case scenario ... we believe capital raisings may be required if a long enough transition period is not granted to the banks by APRA,” he said. Morgan Stanley analyst Richard Wiles said the options proposed by APRA to reduce domestic retail exposure to hybrids, limit bank reliance and changing the design of the system would all result in higher costs for banks.
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