Westpac Trust Preferred Securities units look set to be redeemed in June at their interest step-up date. In Westpac’s latest half-yearly report, the bank stated its policy was to replace instruments which are not Basel III compliant. Westpac’s TPS will lose their Additional Tier 1 (AT1) status from 30 June, which coincidentally is the step-up date for the TPS units, so a new AT1 issue is likely to be announced shortly.
Step-up securities were issued with an incentive for banks to redeem them or pay additional interest to holders. When securities such as these lose their regulatory capital status, they become expensive for the bank to maintain hence the redemption and issue of new regulatory compliant securities.
There are roughly $750 million of TPS units on issue and thus we can expect at least this amount of new securities to be issued. Westpac’s last AT1 issue in July 2015 was in the form of Westpac Capital Notes III (ASX code: WBCPF), were issued with a margin of 400bps over BBSW, a mandatory exchange date in March 2023 and a call date in 2021. Trading margins are higher now, so a new hybrid from Westpac would be in the 475bps range if margins stay roughly at current levels.