ANZ issues Tier 2 10.25NC5.25 bonds at 4.50% FPG

The Australia and New Zealand Banking Group (“ANZ”) announced on 24 Aug 2022 that the bank’s Tier 2 subordinated bonds will be priced at a final price guidance of 4.50%. The new issue will not be callable for 5.25 years and have a fixed maturity date on 2 December 2032. 

The issuer is rated Aa3 (stable) / AA- (stable) / A+ (stable) by Moody’s / S&P / Fitch respectively. The tier 2 bond is expected to be rated Baa1/ BBB+ / A- by Moody’s/ S&P/ Fitch respectively. The bond is callable on 2 December 2027 and have a fixed maturity date on 2 December 2032. If not called on 2 Dec 2027, the bond will reset at the prevailing 5Y SORA-OIS plus the initial margin of 174.3 basis points (“bps”).

ANZ is an Australian multinational bank headquartered in Melbourne, Australia. According to S&P Global, it is Australia’s second largest bank by assets, with total assets of USD 709b as of 14 April 2022. ANZ is one of the big four Australian banks, along with National Australia Bank, Westpac, and Commonwealth Bank.

For the first half ended 31 March 2022 (“1H22”), ANZ reported operating income of AUD 9.5b, an increase of 14% year-on-year (“yoy”). Despite a challenging environment for banks, ANZ had profit attributable to shareholders of the company of AUD 3.5b, an increase of 20% from the year prior. In 1H22, ANZ had AUD 342b of net loans and advances, resulting in AUD 4.32b of income from its Australia Retail and Commercial segment. Net interest margin fell by 6 bps quarter-over-quarter (“qoq”) to 159 bps due to near-term competitive pressures and negative impact of higher swap rates.

In terms of its credit profile, ANZ had a CET1 ratio of 11.5% based on APRA Basel 3 standards. When adjusted to internationally comparable Basel 3 standards, ANZ’s CET1 ratio was 18%, which is much higher than average compared to peers. Liquidity coverage ratio for ANZ was 132%, which is higher than regulatory requirements. Overall, we find ANZ’s solvency to be strong as stronger earnings help to bolster CET1 capital and higher than average CET1 ratio allows for more buffer to withstand impact on the bank’s solvency. 

Moving on to relative valuation, we think the ANZ tier 2 bonds are more attractive compared to other newly issued tier 2 bonds like BNP 5.250% 12Jul2032 Corp (SGD) and ABNANV 5.500% 05Oct2032 Corp (SGD). At a FPG of 4.50%, it is priced higher than the yield to worst (“YTW”) of the BNP 5.25% bond (YTW: 4.25%) and ABNANV 5.50% (YTW: 4.47%). We find ANZ to be better capitalised than BNP and ABN. ANZ’s higher than average CET1 ratio of 18% provides a significant buffer on its solvency before any write-down on its tier 2 notes could occur.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in ANZ 4.500% 02Dec2032 Corp (SGD) and the analyst who produced this report hold a NIL position in the abovementioned securities.