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Santander for Aviva refugees

Gilts, bonds, and interest-bearing shares
GSVsowhat
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Re: Manchester BS PIBS

#255413

Postby GSVsowhat » October 2nd, 2019, 4:18 pm

I have followed your posts re these PIBS, which I find robust and thanks for, and have looked at the 6.75% prospectus. I note in one of your posts your advise that neither PIBS is callable, however under Special Conditions of Issue Section 4. (4) (p11) the bonds are callable on 13-4-2030 at par.

Do you agree or am I missing something.

For me this makes these a different proposition if things are going well by then.

GoSeigen
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Re: Manchester BS PIBS

#255418

Postby GoSeigen » October 2nd, 2019, 4:53 pm

GSVsowhat wrote:I have followed your posts re these PIBS, which I find robust and thanks for, and have looked at the 6.75% prospectus. I note in one of your posts your advise that neither PIBS is callable, however under Special Conditions of Issue Section 4. (4) (p11) the bonds are callable on 13-4-2030 at par.

Do you agree or am I missing something.

For me this makes these a different proposition if things are going well by then.



I do agree, very sorry I didn't notice this before. As you hint this is unfortunate in the case that the business is doing well because it will limit the upside for the 6.75% PIBS and they will likely always trade with a bit of an option discount, especially close to par.

To be honest, my focus has been more on the 8%, but will now actively look for opportunities to exit the 6.75% PIBS in favour of the 8% when circumstances allow.

Thank you.

GS

Surerera
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Re: Santander for Aviva refugees

#255693

Postby Surerera » October 3rd, 2019, 5:37 pm

GS - Managed to buy more MBSP today, there seems to be plenty of stock around.

Surerera

GoSeigen
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Re: Santander for Aviva refugees

#255812

Postby GoSeigen » October 4th, 2019, 10:55 am

Surerera wrote:GS - Managed to buy more MBSP today, there seems to be plenty of stock around.

Surerera


I've also been buying back the West Bromwich PIBS (WBS) that I tendered. The price has dropped back to 36.5p to buy. There is a call in 2021 IIRC. The PIBS are no good for regulatory capital and there is only a small rump remaining. Although they rest to a margin over 5-year gilts, I wonder if West Bromwich will be tempted to call them. Seems to me that at some point the market should price in that possibility. Funding via customer deposits is much cheaper and I doubt they have a shortage of deposits -- more likely too much cash in common with everyone else.

So hoping that these will re-rate and trade a bit closer to par. Behind this argument lies the expectation that the board will resume the interest after another couple of profitable years. Although it's a way off, the possibility of this must start to enter investors' calculations in advance of the fact. With a 2% payment, the running yield at current purchase price is a fairly normal c5.5%, with a higher payment the market price will need to be higher.

Even if the PIBS are not called, then the margin to 5-year gilts for the maximum interest payout makes these something of an inflation hedge too. So an interesting investment even if tricky to value.


GS

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Re: Santander for Aviva refugees

#256025

Postby Surerera » October 5th, 2019, 1:45 pm

GS - Thanks I'll have a look into those.

GoSeigen
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Re: Santander for Aviva refugees

#256108

Postby GoSeigen » October 5th, 2019, 7:33 pm

Surerera wrote:GS - Thanks I'll have a look into those.


ISTR that you bought a few of these not long before the tender offer. Hope you got out with a bit of profit. Nice to buy them back at a lower price now, but of course they are very small fry and likely to be illiquid.

GS

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WBS Results

#267489

Postby GoSeigen » November 26th, 2019, 8:14 pm

GoSeigen wrote:
Surerera wrote:GS - Managed to buy more MBSP today, there seems to be plenty of stock around.

Surerera


I've also been buying back the West Bromwich PIBS (WBS) that I tendered. The price has dropped back to 36.5p to buy. There is a call in 2021 IIRC. The PIBS are no good for regulatory capital and there is only a small rump remaining. Although they rest to a margin over 5-year gilts, I wonder if West Bromwich will be tempted to call them. Seems to me that at some point the market should price in that possibility. Funding via customer deposits is much cheaper and I doubt they have a shortage of deposits -- more likely too much cash in common with everyone else.

So hoping that these will re-rate and trade a bit closer to par. Behind this argument lies the expectation that the board will resume the interest after another couple of profitable years. Although it's a way off, the possibility of this must start to enter investors' calculations in advance of the fact. With a 2% payment, the running yield at current purchase price is a fairly normal c5.5%, with a higher payment the market price will need to be higher.

Even if the PIBS are not called, then the margin to 5-year gilts for the maximum interest payout makes these something of an inflation hedge too. So an interesting investment even if tricky to value.


GS



WBS price has been moving up steadily, perhaps reflecting optimism about upcoming results, and sure enough a very solid, profitable half year report came out today:

https://www.londonstockexchange.com/exc ... 23748.html

IMO the most interesting item in this report is that a maiden distribution has been declared on the CCDS. I don't think this means PIBS will get interest payments next year, but if profitability continues then perhaps in 2021.

The recent price rises are welcome, but notional trading spreads are still huge, be careful when trading -- hopefully the spread will improve as the price firms.


GS

rthak
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Re: WBS Results

#267567

Postby rthak » November 27th, 2019, 9:05 am

GoSeigen wrote:
GoSeigen wrote:
Surerera wrote:GS - Managed to buy more MBSP today, there seems to be plenty of stock around.

Surerera


I've also been buying back the West Bromwich PIBS (WBS) that I tendered. The price has dropped back to 36.5p to buy. There is a call in 2021 IIRC. The PIBS are no good for regulatory capital and there is only a small rump remaining. Although they rest to a margin over 5-year gilts, I wonder if West Bromwich will be tempted to call them. Seems to me that at some point the market should price in that possibility. Funding via customer deposits is much cheaper and I doubt they have a shortage of deposits -- more likely too much cash in common with everyone else.

So hoping that these will re-rate and trade a bit closer to par. Behind this argument lies the expectation that the board will resume the interest after another couple of profitable years. Although it's a way off, the possibility of this must start to enter investors' calculations in advance of the fact. With a 2% payment, the running yield at current purchase price is a fairly normal c5.5%, with a higher payment the market price will need to be higher.

Even if the PIBS are not called, then the margin to 5-year gilts for the maximum interest payout makes these something of an inflation hedge too. So an interesting investment even if tricky to value.


GS



WBS price has been moving up steadily, perhaps reflecting optimism about upcoming results, and sure enough a very solid, profitable half year report came out today:

https://www.londonstockexchange.com/exc ... 23748.html

IMO the most interesting item in this report is that a maiden distribution has been declared on the CCDS. I don't think this means PIBS will get interest payments next year, but if profitability continues then perhaps in 2021.

The recent price rises are welcome, but notional trading spreads are still huge, be careful when trading -- hopefully the spread will improve as the price firms.


GS


I’be been following all of this with interest. One question I hope you can help with - if payments include the PIBS are completely discretionary, why would WBS ever pay them?

GoSeigen
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Re: WBS Results

#267572

Postby GoSeigen » November 27th, 2019, 9:28 am

rthak wrote:I’be been following all of this with interest. One question I hope you can help with - if payments include the PIBS are completely discretionary, why would WBS ever pay them?


Short answer: why are dividends paid on any share? (And yes, I realise the board could be sacked by shareholders but...)

Longer answer: correct me if I'm wrong, but under the standard terms the interest may be cancelled if the society is unable to meet its regulatory capital requirements. So if the capital situation is okay, then there is no strong excuse not to pay. More specifically, under the changed terms of the PIBS since West Brom's bailout, the payment of interest is prevented by the notional deficit in the old PPDS reserve. Once this reserve deficit is cleared (by addition of profits) there will be one less reason not to pay PIBS interest.

Having said all that I agree with you, that eventual payment is not a nailed-on certainty. It may be that holders will need to apply moral pressure on the board to start paying. I am having the same problem with another bond-like instrument I hold, issued by AIB and amended under Irish law to have discretionary/optional interest payments: the problem is AIB is now paying cash dividends to the ordinary shareholders but still not paying interest on this tranche of their debt. It's a bizarre situation and I think I am going to have to cajole and threaten the board with legal action to get them paying again.

I hope this is not what will happen with WBS, but as you say, it is a possibility. The fall-back position though is that surplus profits are supposed to be distributed to members...

GS

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Re: Santander for Aviva refugees

#267616

Postby Gan020 » November 27th, 2019, 11:19 am

Not sure if posters will find this helpful. I don't hold so dont' fully understand the nuances but maybe it if of use to some.

Comment on Twitter by Mark Taber on Nov 22nd. In his view continued cancellation of WBS PIBS interest makes payment of CCDS unlawful. I can't seem to post a link so you will have to go Twitter and search

GoSeigen
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Re: Santander for Aviva refugees

#267743

Postby GoSeigen » November 27th, 2019, 4:59 pm

Gan020 wrote:Not sure if posters will find this helpful. I don't hold so dont' fully understand the nuances but maybe it if of use to some.

Comment on Twitter by Mark Taber on Nov 22nd. In his view continued cancellation of WBS PIBS interest makes payment of CCDS unlawful. I can't seem to post a link so you will have to go Twitter and search


Why ever does he think it's "unlawful"? Would be nice if he could explain. There is no explanation in his tweet. Certainly I cannot see what is bothering him from the little information given...


GS

GoSeigen
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Re: Santander for Aviva refugees

#269333

Postby GoSeigen » December 5th, 2019, 4:35 pm

GoSeigen wrote:
Gan020 wrote:Not sure if posters will find this helpful. I don't hold so dont' fully understand the nuances but maybe it if of use to some.

Comment on Twitter by Mark Taber on Nov 22nd. In his view continued cancellation of WBS PIBS interest makes payment of CCDS unlawful. I can't seem to post a link so you will have to go Twitter and search


Why ever does he think it's "unlawful"? Would be nice if he could explain. There is no explanation in his tweet. Certainly I cannot see what is bothering him from the little information given...


Today Mark tweeted an explanation of his thinking about WBS:

https://twitter.com/MarkTaber_FII/statu ... 3637882880

Is it lawful for West Brom to cancel PIBS interest then proceed to pay a divi on other classes of shares? Ground 1: The West Brom sought to delete the blocker preventing it [by] using an exit consent in the 2018 LME despite the Assenagon judgment [...] making such exit consents unlawful [My edits in brackets]

Interesting argument, and Mark posts the relevant aspect of the Assenagon judgment in support. I've no idea whether this argument would be successful in court.

The first thing to note is that the situations differ somewhat: the WBS PIBS were not cancelled/expropriated, only their terms were altered. However, Mark would doubtless argue that this difference is merely one of degree. On an initial look I agree that the resolution might be deemed oppressive because, as described in the quoted A. judgment, the resolution altering WBS terms which was passed using the exit consent could not be described as being of any benefit to noteholders: the majority noteholders voting in favour of the resolution already had their fixed 51p payment for their shares, while the minority noteholders voting against the resolution were left with shares bearing inferior terms to those previous to the resolution. Their worse position was reflected in the hefty fall in the price of the shares immediately following the passing of the resolution. By voting in the way they did the majority Noteholders has achieved a decent outcome for themselves at the expense of the minority. (i.e. Arguably they were "bribed" to oppress the minority.)

So somewhat in support of Marks argument at this point.


I have to say I find this situation curious due to the fact that Mark himself was active in calling for WBS to restructure its capital prior to 2018. I wonder if he or anyone he advised was involved in structuring the deal, and given his close interest in the shares, why has it taken him so long to speak up about this issue?

There is a second interesting point to note, which is that Mark commented frequently about the AIB 12.5% 2019 bonds. In 2011(?) they had their terms altered by the Irish Finance Minister to make their interest payments completely optional, so quite similar to WBS PIBS, yet AIB are now paying cash dividends on their ordinary shares which are very VERY clearly junior to the bonds, while at the same time failing to pay interest on those bonds earlier this year. Previously they could hide behind EU rules prohibiting the payments but I think those fell away last Dec 2018. The close parallel is interesting albeit the way the similarities arose differs.


It would be great if Mark could check in here and comment on some of the above.

GS

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Re: Santander for Aviva refugees

#275521

Postby GoSeigen » January 6th, 2020, 1:46 pm

Surerera wrote:GS - Managed to buy more MBSP today, there seems to be plenty of stock around.

Surerera


The Manchester Building Society PIBS (MBSP and MBSR) seem to be moving up fairly smartly of late. I'm not aware of any news driving this. Anyone in the know?


GS

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Re: Santander for Aviva refugees

#275572

Postby Wizard » January 6th, 2020, 5:29 pm

GoSeigen wrote:
Surerera wrote:GS - Managed to buy more MBSP today, there seems to be plenty of stock around.

Surerera


The Manchester Building Society PIBS (MBSP and MBSR) seem to be moving up fairly smartly of late. I'm not aware of any news driving this. Anyone in the know?


GS

But interestingly it is the 6.75% MBSPs that have climbed most. According to Hargreaves Lansdown the price to buy these is actually marginally above that of the 8% MBSRs. Curious.

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Re: Santander for Aviva refugees

#275573

Postby Surerera » January 6th, 2020, 5:31 pm

Hi GS - No idea what's happening, I noticed the price move and found there was no online offer so popped into the Lemon Fool to see if you knew what was going on! Happy New Year to you, let's hope the markets continue to be kind to us.

Surerera

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Re: Santander for Aviva refugees

#275580

Postby hiriskpaul » January 6th, 2020, 6:06 pm

I bought 200k nominal of the 8% in a number of purchases between the election and Christmas Eve. To start off with I could get bids for 50k. After Christmas, down to 1k, so not surprised the price has moved up a bit. There is only 5m of the stuff anyway. I was mainly interested in the 8% for lack of call feature, but found it harder to get bids for the 6.75%. Market makers seem to want to buy more than sell, so the price might stabilise if some sellers are flushed out.

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Re: Santander for Aviva refugees

#275962

Postby GoSeigen » January 8th, 2020, 2:27 pm

hiriskpaul wrote:I bought 200k nominal of the 8% in a number of purchases between the election and Christmas Eve. To start off with I could get bids for 50k. After Christmas, down to 1k, so not surprised the price has moved up a bit. There is only 5m of the stuff anyway. I was mainly interested in the 8% for lack of call feature, but found it harder to get bids for the 6.75%. Market makers seem to want to buy more than sell, so the price might stabilise if some sellers are flushed out.


That explains to some extent -- I guess the supply of these PIBS has dried up for the time being. I also have bought in excess of 200k nominal over the past year or so. Hope it doesn't all go wrong now!

GS

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Re: Santander for Aviva refugees

#281378

Postby GoSeigen » January 31st, 2020, 1:10 pm

GoSeigen wrote:
GoSeigen wrote:
Gan020 wrote:Not sure if posters will find this helpful. I don't hold so dont' fully understand the nuances but maybe it if of use to some.

Comment on Twitter by Mark Taber on Nov 22nd. In his view continued cancellation of WBS PIBS interest makes payment of CCDS unlawful. I can't seem to post a link so you will have to go Twitter and search


Why ever does he think it's "unlawful"? Would be nice if he could explain. There is no explanation in his tweet. Certainly I cannot see what is bothering him from the little information given...


Today Mark tweeted an explanation of his thinking about WBS:

https://twitter.com/MarkTaber_FII/statu ... 3637882880

Is it lawful for West Brom to cancel PIBS interest then proceed to pay a divi on other classes of shares? Ground 1: The West Brom sought to delete the blocker preventing it [by] using an exit consent in the 2018 LME despite the Assenagon judgment [...] making such exit consents unlawful [My edits in brackets]

GS


Mark has continued to tweet about WBS and seems to have prompted the following "Update on PIBS Distribution Policy" from West Bromwich Building Society, in case anyone hasn't seen it:

https://www.londonstockexchange.com/exc ... 91216.html

The update doesn't address Mark's point about the legality of the allegedly coercive exit consents. It does reiterate the Society's policy on PIBS payments, which to me looks like what we knew already from earlier documentation.


The one useful thing in the statement is that it quantifies the effect of Tier 2 interest payments on calculation of the PPDS deficit, which makes it easier for us to track it accurately. They promised to quote the figure in annual reports.

The PPDS deficit is currently £6.3m and reducing by some £3m per year. Thus with a bit of luck next year will be the last without any PIBS interest at all.



Assuming payments resume in 2022, and profits at that time are the same as the most recent year, I calculate the PIBS coupon will be 1.5%. Pricing the PIBS today as a 5-year bond (they are callable every 5 years) yielding gilts+3% (i.e. 3.5%) gives a valuation for the PIBS of about 88p, compared to current market price of around 45p.


Now admittedly it's going to take quite a while for the PIBS to reach that sort of yield. If we assume it will take five years for the yield to drop and settle around 3.5% as above then current yield for WBS bought at today's prices is roughly 14%pa.


These are all very speculative figures and very sensitive to my assumptions, e.g. if 5-year gilt yields rise to 3% then that 14% figure drops to about 11.6%; my spread over gilts of just 3% is perhaps optimistic! However, hopefully they illustrate some potential in the PIBS as a quirky little investment.


GS

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Re: Santander for Aviva refugees

#283276

Postby Swanmore22 » February 9th, 2020, 2:13 pm

Apologies in advance if this is on wrong board, but could not find a seperate post for Manchester PIBS, PPDS.

Re the PPDS , £18m in issue, does anyone know if there is a mkt price available ?
There was talk that the issue was bought by Nationwide , which would explain lack of pricing ?

Swan

hiriskpaul
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Re: Santander for Aviva refugees

#283619

Postby hiriskpaul » February 11th, 2020, 1:39 pm

Swanmore22 wrote:Apologies in advance if this is on wrong board, but could not find a seperate post for Manchester PIBS, PPDS.

Re the PPDS , £18m in issue, does anyone know if there is a mkt price available ?
There was talk that the issue was bought by Nationwide , which would explain lack of pricing ?

Swan

As far as I am aware the PPDS are all privately held, issued as a rescue capital raise in 2013 following a period of utterly appalling management. I don't think it is has ever been disclosed who took the PPDS. It is assumed to be Nationwide but there may have been other mutuals involved. The PPDS are entitled to 30% of net profits and the reserve account is substantially underwater.

Finals will be out in about a month, which will be interesting reading. Fingers crossed for continuing profits.


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