Banks bonds 'called' early

Investors in more than $1 billion of "callable" 10-year bank bonds look set to be paid five years early as banks seek to avoid paying interest rates in excess of 8 per cent.

Investors in more than $1 billion of "callable" 10-year bank bonds look set to be paid five years early as banks seek to avoid paying interest rates in excess of 8 per cent.

Kiwibank last week paid out investors in its $75 million, 10-year, 7.72 per cent coupon bond five years early. Early this month, ANZ National "called" a $250 million, 7.60 per cent, bond.

Bonds that are callable mean the issuer can repay, or call, the bond before its maturity date, or reset the coupon rate.

A handful of other banks, each of them paying interest rates set in 2007 before the onset of the global financial crisis, have reset dates coming up.

At today's rates, investor returns would roughly halve if banks opted to reset, but standard market practise is to pay out investors early.

Three banks - BNZ, ANZ National and ASB Bank - have $1.07 billion in bonds that are callable in the next few months.

"It seems more probable that these deals will be called," said Mark Brown, director of fixed interest at Harbour Asset Management. "But if we go into European crisis Part 2, then all bets may be off."

BNZ has $350 million in June 2017 bonds, with a current coupon rate of 8.42 per cent, callable on June 15 this year. ANZ National has $350 million in July 2017, 8.23 per cent bonds, callable on July 23, and ASB Bank has $370 million December 2017, 8.77 per cent bonds, callable November 15.