On 30 January 2020, Macquarie Bank Limited (MBL) announced, after the market closed, that it intends to repay the $400 million Macquarie Income Securities (ASX: MBLHB) in accordance with their terms of issue and subject to MBL shareholder approval of the associated capital. APRA has already given its approval.
MBLHB holders will receive $100 per security together with the previously announced distribution (unfranked) of ~$0.6457 on 15 April 2020. The mechanism is a reduction of capital on each preference share of $99.99 followed by a redemption amount of $0.01.
The last day of trading on the ASX is expected to be Wednesday 25 March 2020.
MBL noted that the repayment would reduce its Additional Tier 1 (AT1) Capital by ~$94 million.
As at 30 September 2019, MBLHB's contribution to MBL's AT1 Capital was $140 million, during 2018 it was $186 million and $233 million in 2017 - highlighting the progressive reduction in the amount allowed by APRA of legacy instruments under transitional arrangements for Basel III Capital Adequacy. Knowledge of this point coupled with our increasing comfort with MBL (and Macquarie Group) led us to upgrade our recommendation on MBLHB to Buy in July 2017. An investor purchasing at this time (capital price of $78.5), receiving distributions (unfranked) and holding through to the expected repayment in April 2020, would receive a total return of ~$31.5 (holding period return of ~40%), which we calculate equates to an annualised compound return of ~12.9%.