Questions of the Week – hybrids and AHG

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Question: How do hybrid shares, in particular bank hybrids, move in price as compared to the bank’s shares? For example, if the Macquarie (MQG) or CommBank (CBA) share price halved, how would their notes or hybrids respond.

Answer (By Paul Rickard): There is no direct correlation between bank ordinary shares and bank hybrid securities, but:

  1. Investors compare yield, so if bank ordinary shares drop in price, and the expected dividend yield rises, then hybrid securities will usually follow suit (that is, the price will drop so that the effective trading margin increases). Sometimes there can be a bit of a delay in this occurring;
  2. If bank ordinary shares get savaged because of concerns about deteriorating credit quality, then bank hybrid securities will probably also be savaged. As capital instruments, if investors start to doubt whether their $100 capital is “safe”, major capital losses can be expected.

Question: I am holding Automotive Holdings Group (AHG) and it is about 6% of my share holding, do you see the share price rising? I am holding long term but will consider to selling the lot on any rise above my buy price ($3.22), which seems a long way off at the moment.

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