Bank issues on viable contingent capital in the form of rate reset preferred shares is the $2- billion plus flavor of the month for investors.
Given that they all pay attractive yields and are relatively risk free, they are attractive to buy certainly when considered alongside the negativity affecting the market for common shares. The S&P/TSX composite is down by more than six per cent this year.
The latest example of their popularity played out this week when the National Bank raised $500 million of such capital. The bank, which initially planned to raise a minimum of $250 million (with an option for $50 million more), will pay 5.6 per cent for the Tier 1 capital. The yield of 5.60 per cent is comprised of a base rate (the yield on five-year Canada bonds) of 0.70 per cent, plus a spread of 490 basis points.