Australian (ASX) Stock Market Forum

Westpac deposit discrepancies: what are they doing?

As an investor of Hybrid the securities the simple answer is risk. There is no risk with a Term Deposit and it is government guaranteed. Suncorp was looking really unsafe and all their hybrids were well down up until the magic wand was waved by the Government Guarantee. In an instant the guarantee provided security again and the deposits that Suncorp needed came flowing in. The stockmarket was collapsing in a massive way and there was talk about risky loans in Gold Coast Property developments going sour, no one wanted to go near Suncorp and their shares tumbled but that was then and all is rosy again. I currently own a Suncorp Floating Rate note and it is trading at $65 which is a massive 35% loss! Personally 8% at no risk is far better than 7.8% with big risk and no guarantee. I'm not saying there is no money to be made in Hybrids, you just got to choose the right ones.
Thanks for saving me the trouble, Bill.

Only one problem - the government guarantee was only put in place for a period of 3 years. We are already one year into it.
Good point, communique.
 
As an investor of Hybrid the securities the simple answer is risk. There is no risk with a Term Deposit and it is government guaranteed. Suncorp was looking really unsafe and all their hybrids were well down up until the magic wand was waved by the Government Guarantee. In an instant the guarantee provided security again and the deposits that Suncorp needed came flowing in. The stockmarket was collapsing in a massive way and there was talk about risky loans in Gold Coast Property developments going sour, no one wanted to go near Suncorp and their shares tumbled but that was then and all is rosy again. I currently own a Suncorp Floating Rate note and it is trading at $65 which is a massive 35% loss! Personally 8% at no risk is far better than 7.8% with big risk and no guarantee. I'm not saying there is no money to be made in Hybrids, you just got to choose the right ones.

I was under the impression that an interest rate of 7.8% fully franked s***s all over 8% (7.8% F.F. =approx 11%), the 8% does compound though, but i guess u can put your hybrids dividends in a high interest savings account and get a compound effect. And u get an additional 6% on maturity. Also the hybrid interest rate will move with the interest rates, i am under the impression that they will increase by a nice margin in the next 18-36 months.

Are hybrids in SUN really that much riskier than a term deposit in SUN? The government guarantee will only last for the first 2 years of the 5 year term deposit.

I am having trouble why u guys seem to think that the term deposit is a better investment than the SUN hybrid.
 
I was under the impression that an interest rate of 7.8% fully franked s***s all over 8% (7.8% F.F. =approx 11%), the 8% does compound though, but i guess u can put your hybrids dividends in a high interest savings account and get a compound effect. And u get an additional 6% on maturity. Also the hybrid interest rate will move with the interest rates, i am under the impression that they will increase by a nice margin in the next 18-36 months.

Are hybrids in SUN really that much riskier than a term deposit in SUN? The government guarantee will only last for the first 2 years of the 5 year term deposit.

I am having trouble why u guys seem to think that the term deposit is a better investment than the SUN hybrid.
All the points you make are valid. As I said in the original post, it is all about risk.

OK, there are some very credible high profile economists out there saying the next banking crisis will hit mid year 2010. Lets say this is true and mortgage defaults are flooding in and property developers get into trouble and Suncorp can't cope and go under then the person with the Government guarantee is protected (for 2 years) all the hybrids and shareholders would lose everything, that is as bad as it could get. Risk versus no risk is what it is all about. The first question you should ask yourself when investing in anything is, is my money guaranteed and can I cope with losing everything should the company I invest go under? By the way I am currently receiving receivership payments from a "safe and secure" company that went bust. It does and possibly could happen.
 
Alternatively SUN does not go bust but does make some losses and unable to pay dividends and the hybrid interest. Hopefully it doesn't happen but it can happen like PaperLinx although they don't do banking.
 
I may be slightly stupid but then maybe not.

Don't you think there would be a reason why a bank is offering you a fixed rate at 8% for the next 5year.

Obviously they do need a good fixed balance for some time however I would find it hard to believe that 8% which is well above the current RBA rate is there for any other reason then the banks believe in the long term rates are going to be significantly higher.. I wouldn't be surprised to see 10-14%

Any way thats just my thoughts.
currently happy getting my 5.51% e-saver
slightly less then the good 8% however I happy to wait it out another year.

This is my opinion nothing else, please correct me if required.
 
Hey Julia, just to prove my noobness I have a question.
Why would you invest in a term deposit with Sun as oposed to investing in a Sun hybrid security, which are currently paying 7.8% F.F. (moves with 90 day BBSW) and an additional 6% on maturity in mid 2013?

Another point not noted by other replies is that rates for Hybrids are normally quoted INCLUDING the FF amount. So depending on your tax rate, hybrids can have different return outcomes. 7.8% is really 7.8% max

Also coupon is quoted on issue price..ie 7.8% on $100, so actual div is higher percent now based on $7.80/$65 price.

Various term deposit offerings at 6.8% for 12 months are good value imo

I prefer to buy hybrids at discount rate, not issue price.

The planets lined up recently for hybrids, with raising interest rates, low term dep rates and credit ratings improved following a big selldown, picked up some showing 8-10% yield, now sitting on 20-30% gains, party is mostly over now though

would be reluctant to lock much cash up for 5 yrs as the guarentee will be finished before then, even though if its ever needed we will all be stuffed anyway
 
would be reluctant to lock much cash up for 5 yrs as the guarentee will be finished before then, even though if its ever needed we will all be stuffed anyway
That's quite right, awg. Before the GFC I don't think it occurred to many of us to think the government should be guaranteeing bank deposits in view of the general stability of our banking system, and the seemingly diligent role of APRA.

The government guarantee was, imo, a purely political and social move to prevent unjustifiable panic at the time. As such it was a good thing to do.

Agree with you about locking up much cash for that period of time. I've only done it with the proportion that I always keep in cash.
 
I may be slightly stupid but then maybe not.

Don't you think there would be a reason why a bank is offering you a fixed rate at 8% for the next 5year.

Obviously they do need a good fixed balance for some time however I would find it hard to believe that 8% which is well above the current RBA rate is there for any other reason then the banks believe in the long term rates are going to be significantly higher.. I wouldn't be surprised to see 10-14%
You could be right. I'm more inclined to think that the banks currently offering higher rates have a need to bring in X amount of funds to balance their books. Then when they've achieved that level, the offer will be withdrawn.

For a while CBA was matching every offer Westpac made, but they stopped that about three or four weeks ago. To me, that reinforces my theory, as I'd guess more people would deposit funds with CBA than with WBC if all other things are equal.
 
I'm going in to do it tomorrow, Bill. Agree that as soon as they've reached their target amount, the offer will be withdrawn.
I always keep a percentage in cash and even if the cash rate goes up another 1% or so, I'd be surprised if we see retail deposit rates at much higher than 8%.

Was down in Manly on Saturday and walked past the Westpac Bank there, it seems they have pulled the plug on the 8% for 5 years. There was a big sign in the window showing it's only 7.25% "special" rate now for 5 years. Good on ya for getting it while you could, cheers.
 
That's interesting, Bill. I've just checked the St. George website and they have done the same. They must have filled their current requirement for cash.
 
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