Both Tier 1 Hybrids and Tier 2 Notes contain terms necessary to meet APRA’s requirements for Bank capital.
Tier 1 Hybrids and Tier 2 Notes have a number of similarities, but also some important differences. Some of these are summarised below:
Tier 1 Hybrids: |
Tier 2 Notes: |
|
| Protected under the Financial Claims Scheme | No | No |
| Term of investment | Perpetual, with Mandatory Conversion1 | Fixed maturity date, typically around 10 years1 |
| Early return of Investment at the Bank's option | Optional Redemption, Optional Resale and Optional Conversion, subject to APRA Approval | Optional Redemption, subject to APRA approval |
Payments |
Frankable, periodic distributions on scheduled dates1 | Unfranked, periodic interest on scheduled dates1 |
Conditions to Payment |
Payment Restrictions |
Solvency Condition |
| Discretionary Payments: Bank may decide not to make payments |
Yes |
No |
| Cumulative: Missed payments remain a debt owing to the investor |
No |
Yes |
Tradeable on the ASX |
Typically, yes |
Typically, yes |
Loss absorption features: |
Yes, if a Common Equity Trigger Event or a Non-Viability Trigger Event occurs | Yes, if a Non-Viability Trigger Event occurs |
Ranking |
Subordinated, rank ahead of Ordinary Shares, but behind Tier 2 Notes and all other claims (If not Converted or Written-Off) | Subordinated, rank ahead of Tier 1 Hybrids and Ordinary Shares but behind all other claims (If not Converted or Written-Off) |
1 Subject to conditions