Regional ASX-listed AT1s

Regional ASX-listed AT1s

Hot off the heels of Macquarie Bank Capital Notes 3 (ASX Code: MBLPD) we are likely to see another regional bank issue an ASX-listed Capital Note this week. The demand for the MBLPD offer was significant, especially from institutional investors, with AUD500m allocated across the bookbuild, with the final credit margin being set at 2.9%.

The Investment Strategy

Regional ASX-listed AT1s generally offer around 0.5-1% additional yield versus Major Bank equivalent ASX-listed AT1s;
Regional banks have improved their common equity tier 1 (CET1) ratios, which is a positive for AT1 securities as it increases the buffer above the 5.125% capital trigger;
Regional banks are not subject to total loss absorbing capital (TLAC) requirements, meaning their AT1 and T2 issuance will centre around upcoming maturities and will be less sporadic; and
The point of non-viability (PONV) is unlikely to occur in practice as a regional bank would likely get swallowed up by a major bank prior to any conversion/write-down.

Two Charts of Note

ASX-listed Capital Notes (AT1) – YTM (%) and Credit Spread (%)
ASX-listed Capital Notes (AT1) – YTM (%)

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Chart 1. ASX-listed Capital Notes across Major Banks

Source: BondAdviser August 2021

Chart 2. ASX-listed Capital Notes across Regional Banks

Source: BondAdviser August 2021

Chart 3. ASX-listed Capital Notes Across Major and Regional Banks

Source: BondAdviser August 2021

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