Basel III implementation may lead to income securities buyback
Income securities were among the earliest hybrids issued and as the hybrids market grew more sophisticated the price of all of them drifted down below the issue price of $100 (par value). For some years now income securities such as NABHA, MBLHB, WOWHB and BENHB have traded consistently below par value. There are two reasons this has occurred.
The first, is that issue margins in the 1990s were much lower than today and the current price simply reflects current yields.
The second reason for the income securities to trade at less than face value is the perpetual nature of the instruments. It is uncertain when investors will get their capital back. Most hybrids have maturity dates or exchange dates when the securities will be redeemed – subject to several conditions being met (such as the share price being above 50% of the “issue date” share price). Income securities’ redemptions are at the discretion of directors and so far the directors have shown little inclination to redeem these securities.