Commonwealth Bank's plan to combine the resources of its institutional banking group and its broker CommSec for an assault on the equity capital market suffered a setback earlier this month when the CBA was required to invest heavily in an issue of ABC Learning hybrid securities it was marketing. CommSec was lead manager and bookrunner for the $600 million issue of subordinated unsecured convertible reset notes for the childcare centre operator. When the offer to institutional investors closed on June 12 the bank was left to take up an unsold portion. According to an article in IFR Asia last week, CBA picked up $450 million of the deal. Commonwealth has denied this. A spokesman said: "We don't have $450 million." IFR Asia was scathing in its review of the deal, describing it as a flop and reporting that CommSec had "flunked hybrids 101". According to the report, CommSec had not planned an ASX listing of the hybrid issue at the outset but decided to add an ASX listing "at the eleventh hour" so that it would have a mechanism for selling down its substantial holding. CommSec general manager equity capital markets, Tony Kench, said: "We looked at a listing right from the start, even though it was not referred to in the prospectus. "If we had only wanted to raise institutional money we would have issued an information memorandum and not a prospectus. In our discussions with institutional investors we discussed the option of an institution-only deal versus a listing. "As time went on it became apparent to us that there was more support for a listed transaction. The decision came late in the piece but that was just the logistics of it." IFR Asia also criticised CommSec for choosing the option of a hybrid issue for a fast-growing highly geared company like ABC Learning. The report said: "ABC is not of the established, seasoned issuer category." Kench said this was nonsense. "Hybrids have been issued by all manner of companies. As a bank we are very comfortable with our understanding of ABC's business and its credit position. "CBA and CommSec have been involved in equity capital markets business for the past eight years. For most of that time we have been a distributor of product that other people have led. The change in the past couple of years is that we are increasing the deals that we lead. "Three years ago CommSec led two or three deals. Now it is leading a dozen or more a year. A lot of that is hybrid issuance including our own PERLS and an issue for Babcock & Brown. "We do not see the ABC deal as a flop. The bank is happy. It was not our goal at the outset to invest in the issue but it is one of the outcomes you consider when you get into these things."