There are a number of ways to invest in a Bank, including investing in Hybrids. Some are simple and very common. Others, like Hybrids, are complex and more risky, but may pay higher distributions to investors. Money invested in a Bank helps fund its activities, such as lending to households and businesses.
Hybrids (including Tier 1 Hybrids and Tier 2 Notes) are the focus of this website. These securities are called “hybrids” because they contain some features typical of debt investments, and some features typical of equity securities (Ordinary Shares). Banks issue Hybrids primarily to meet specific capital requirements imposed by APRA and to fund their activities.
There are a variety of reasons why investors may choose to include Hybrids in their investment portfolio.
These include the potential, in certain market conditions, for Hybrids to offer:
- higher yields than other less risky investments in a Bank (such as term deposits); and
- lower volatility than Ordinary Shares.
Hybrids may also appeal to investors as they may be able to be traded on the ASX.
Hybrids also carry specific risks of which investors should be aware. In certain circumstances, Hybrid investors may lose all or a significant amount of their investment.
Ways to Invest in a Bank
The table below describes some common types of investments in a Bank, including Hybrids, and some of their typical features. The terms of particular investments may vary.