Investors in ASB perpetual preference shares are likely ecstatic that Commonwealth Bank of Australia has decided to redeem them on May 15.

CBA says the two tranches of preference shares, issued in 2002 and 2004 with face values of $200 million and $350 million respectively, ceased counting toward ASB’s Tier 1 capital from Jan. 1, 2018, although they continued to count as Tier 1 capital for CBA itself.

CBA will redeem both at face value plus any accrued interest and their redemption will reduce CBA’s capital by about 11 basis points.

The reason the redemption is good news for investors is that both issues had been trading at deep discounts. The $200 million 2002 issue last traded on Tuesday at 85 cents in the dollar; the $350 million 2004 traded at 82.5 cents in the dollar.

Both issues have since traded at 99 cents.

“Clients will be absolutely delighted because they will be redeemed at par. For holders of these, that is a fantastic announcement,” says financial adviser Murray Weatherston of Financial Focus.

“If you were being churlish, all you might say is ‘why did it take them so long?’”

The Reserve Bank of New Zealand is conducting a review of bank capital and is proposing that the big four banks will have to lift their Tier 1 capital from 6 percent of risk-weighted assets to 16 percent over a five-year period.

It has also proposed that instruments such as preference shares and other forms of quasi-equity will no longer be allowed to count as Tier 1 capital.

The announcement of the redemption came as ASB reported a 6 percent increase in first-half net profit to $608 million and CBA reported a 6 percent drop in net profit to A$4.6 billion for the six months ended December.

One of the most notable aspects of ASB’s results was that its deposits are growing faster than lending but that it still has a $19 billion, or 22.4 percent funding gap.

Advances to customers rose 6 percent to $85 billion while deposits rose 8 percent to $66 billion.

Its net interest margin rose one basis point to 2.21 percent from the first half last year, although that is down from 2.27 percent in the second half last year.

Charges against profit for bad debts jumped 73 percent but were still tiny at $45 million. ASB’s cost-to-income ratio also improved 70 basis points to 34.8 percent.

CBA’s presentation shows ASB’s loans to dairy farmers rose to $7.7 billion from $7.3 billion a year earlier but that impaired loans fell to 4 percent of the portfolio, or $321 million, from 5.5 percent, or $399 million, a year earlier.

CBA’s fall in profit reflected a fall in net interest margin, weaker insurance results due to a A$61 million increase in claims from storms in New South Wales and Victoria and customers switching from interest-only loans to principal and interest loans.

It also reflected a 4.8 percent drop in other banking income including commissions and fees. Trading income fell 11 percent due to weaker markets.

CBA has come under sustained fire from regulators and the Kenneth Hayne royal commission into financial services.

“Our transformation to be a simpler, better bank is well underway,” chief executive Matt Comyn said in a statement announcing CBA’s results.

“We will continue to take action to address issues, earn trust and be a better bank for our customers.”

ASB chief executive Vittoria Shortt also made comments inspired by the parent bank’s strife. For example, Shortt emphasised ASB’s investment in “the well-being” of New Zealand.

“Banks play an important role in people’s lives and we recognise the trust placed in us to do the right thing,” Shortt said.

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