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Westpac Notes > 6.3 return - contact us now

Thursday, July 19, 2012

WFC has been afforded an opportunity to take part in the recently-announced
Westpac Subordinated Notes issue. Up until recently, these investments were only available to institutional investors.

 

In an environment of low and decreasing interest rates, we are pleased to be able to provide our clients with access to investments that may assist them.
Please find attached a brief overview of the Westpac offer.

 

In short:

  • The notes offer a floating margin above the 90-day bank bill rate (BBSW) – with current yields expected to be in excess of 6.3%pa. This represents an expected margin of between 2.75%-2.95% above the BBSW, meaning that if this rate increases over time, so will the return to investors. Likewise, if this rate reduces so too will this yield.
  • The notes are unsecured, so rank behind creditors and term deposits if Westpac were to be wound up, but rank ahead of shareholders and holders of other instruments.
  • Returns are paid quarterly
  • The notes are listed on the ASX, so may be redeemable prior to the minimum term of 5 years (or expected term of 10 years).

 

Unfortunately with these types of investments, decision-making time is limited. In this case, WFC is required to make its formal bid for an allocation of these notes by 12pm this Friday, 20 July 2012. While monies are not required until mid August, a formal application needs to be made this week. This is typical of these types of investments, and the reason they have traditionally only been open to institutional investors.

 

In our view this may be of strong interest to those who have accumulated cash but are looking for income as interest rates decrease; and are uncomfortable investing in more volatile investments, such as shares. With the floating rate, any future increase in the interest rates (ie. over the next 5-10 years), will increase returns to investors; and in a decreasing environment, the returns will decrease, with the fixed margin staying intact (ensuring returns remain above cash rates).

 

The risk of this investment is that the Westpac Bank cannot pay its liabilities when they are due, resulting in the company being wound up (and then not having sufficient assets to pay investors in these notes). The recent GFC demonstrated the relative strength of Australian banks, but nevertheless investors need to weigh up the risk of this possibility.

 

Given the very short timeframe we would ask that any interested parties please
contact our new Investment Adviser, Mark Zigouris immediately with any interest on 0401 476 221.

 

We look forward to being able to provide you with more of these types of opportunities in the future, and thank you again for your ongoing support.
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