In the early 1990s Australia’s big four banks turned to a new form of capital to bolster their balance sheets as recession raged, and equity funders went on strike.
By offering to pay investors a higher interest rate in exchange for accepting that they be tipped-in in times of crisis, the bank hybrid market was born. The word hybrid refers to the securities’ unique mix of debt, in that it pays a set level of income, and equity, in that it ranks below bondholders and depositors.
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Jonathan Shapiro writes about banking and finance, specialising in hedge funds, corporate debt, private equity and investment banking. He is based in Sydney. Connect with Jonathan on Twitter. Email Jonathan at jonathan.shapiro@afr.com
