Mr Medcraft, whose extended term as ASIC chairman will end in November 2017, launched a fearsome attack against hybrid securities in the Fairfax press last week, labelling them as “ridiculous for retail investors”.
In a note responding to the comments, Morningstar senior credit analyst John Likos said their timing was “a little intriguing” given ASIC’s relative silence on the topic in recent months.
“It’s almost akin to sitting quietly amongst dinner guests all night but letting them know how strongly you object to their views just as you make your way out the door,” Mr Likos said.
Billions of dollars of hybrid supply has been released into the hands of retail investors under Mr Medcraft’s watch, he noted.
“We would have liked them to leverage this and be more vocal from a hybrid education perspective given the strength of their views,” Mr Likos said.
“It could be argued their product intervention powers are limited, but that shouldn’t prevent continued objective dialogue in the investment community.
“Indeed, Medcraft’s comments might be giving us insight into the intended use of new laws aimed at giving ASIC explicit product intervention powers.
“Powers giving ASIC the ability to ban hybrid securities should they be deemed of ‘significant consumer detriment’. [There are] plenty of questions already lining up for the new [ASIC] chairman.”
Morningstar agrees with Mr Medcraft’s comments about the lack of understanding among retail investors about hybrids, he said.
But nevertheless, the outgoing chairman’s decision to throw “such a blanket statement over [hybrids] as an entire asset class is excessive in our view”, Mr Likos said.
