Beware the bank bond offers
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.
