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Preference Shares v Ordinary

Gilts, bonds, and interest-bearing shares
GoSeigen
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Re: Preference Shares v Ordinary

#302728

Postby GoSeigen » April 23rd, 2020, 4:52 pm

GoSeigen wrote:
88V8 wrote:Ss an aside, Aviva have said that in 2026 they may look to redeem their Prefs,


Would you mind linking to this announcement? None of Aviva's shares (ordinary or preference) are redeemable to the best of my knowledge so this doesn't sound right.

GS


Seems this is the relevant statement:

https://www.aviva.com/newsroom/news-rel ... ce-shares/

Under current regulation the preference shares will no longer count as regulatory capital in 2026. Aviva will work towards obtaining regulatory approval for the preference shares, or a suitable substitute, to qualify as capital from 2026 onwards. If as we approach 2026 Aviva needs to reconsider this position, it will do so after taking into account the fair market value of the preference shares at that time.


There is no reference to redemption at all in the release.

What Aviva actually said is that they may substitute the preference shares for another instrument if they cannot get regulatory approval for the preference shares to contribute to capital. They said they'd take account of market value, but holders should beware that this may not be as good an outcome as capital reduction if yields are above 8% at the relevant time.


GS

88V8
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Re: Preference Shares v Ordinary

#302786

Postby 88V8 » April 23rd, 2020, 11:31 pm

GoSeigen wrote:.... holders should beware that this may not be as good an outcome as capital reduction if yields are above 8% at the relevant time.


Thankyou for finding the announcement.
So, given that 2026 is only a digit away, how do you feel about the current pricing of Prefs?

V8

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Re: Preference Shares v Ordinary

#302831

Postby GoSeigen » April 24th, 2020, 9:31 am

88V8 wrote:
GoSeigen wrote:.... holders should beware that this may not be as good an outcome as capital reduction if yields are above 8% at the relevant time.


Thankyou for finding the announcement.
So, given that 2026 is only a digit away, how do you feel about the current pricing of Prefs?


When price to book for LBG ordinary shares is 40%, there's not much incentive to pay 135% for the preference shares.
When price to book for RBS ordinary shares is 28%, there's not much incentive to pay 130% for the preference shares.

Modified duration of those preference shares is about 13 years. If ordinary share prices were to revert to 100% of book value over those 13 years, then the ords outperform the prefs even assuming no growth in book value and no ord dividend payments and nothing bad happening to the prefs.

Don't see that the situation will be much different with other preference shares. Investors have adjusted portfolios for risk reduction. Additionally, they are about to swallow a huge issuance of government securities offering practically no return. IMV money will be made by those willing to take some risk.


Then you've got the Manchester Building Society PIBS, MBSR, MBSP, where the effective PTBV for the PIBS is about 20% -- of course, being PIBS you don't get an equity stake, but with so much equity in the business and having returned to profit then at some point interest payments must resume and these pay 8% of par and are priced below 25p!


GS
[Very much talking my own book here, I hold all the above except LLPC]

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Re: Preference Shares v Ordinary

#304226

Postby ChrisNix » April 29th, 2020, 6:38 pm

Alaric wrote:
GoSeigen wrote:There is nothing obscure about share capital reductions


All of the regulators, market makers, buyers and sellers believed that Preference Shares didn't convey rights to the issuer of the shares to unilaterally repay them at par, particularly in circumstances where the market believed that a continuing income promise was worth a good deal more. Obscure legal arguments about the meanings of certain words and interpretations never plausibly intended were then deployed by Aviva to claim they could could.


They were only obscure to those who didn't have a working understanding of the Companies Act, or couldn't be bothered reading the articles of association to establish the terms of the preference shares they were considering the purchase of!

Prefs like CV don't offer unilateral herd immunity.

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Re: Preference Shares v Ordinary

#304229

Postby Alaric » April 29th, 2020, 6:50 pm

ChrisNix wrote:
They were only obscure to those who didn't have a working understanding of the Companies Act,


Most fixed income investors then who regarded and priced them as perpetuities.

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Re: Preference Shares v Ordinary

#304252

Postby ChrisNix » April 29th, 2020, 7:47 pm

Alaric wrote:
ChrisNix wrote:
They were only obscure to those who didn't have a working understanding of the Companies Act,


Most fixed income investors then who regarded and priced them as perpetuities.


My point stands.

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Re: Preference Shares v Ordinary

#304256

Postby Alaric » April 29th, 2020, 8:00 pm

ChrisNix wrote:My point stands.


The market won though, forcing Aviva to back down and stop being disruptive.

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Re: Preference Shares v Ordinary

#304568

Postby ChrisNix » April 30th, 2020, 5:25 pm

Alaric wrote:
ChrisNix wrote:My point stands.


The market won though, forcing Aviva to back down and stop being disruptive.


The institutions (whose ord holdings could probably have blocked the special resolution for the cancellation at par) swayed the Aviva Board that time, but the legal position remains unchanged.

Caveat emptor.

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Re: Preference Shares v Ordinary

#304579

Postby OwenSwansea » April 30th, 2020, 6:12 pm

It would be interesting to know if GoSeigen agrees with ChrisNix on this matter............

Owen.

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Re: Preference Shares v Ordinary

#304599

Postby 88V8 » April 30th, 2020, 8:02 pm

OwenSwansea wrote:It would be interesting to know if GoSeigen agrees with ChrisNix on this matter............

I'm sure he does.

And I don't disagree, but if one is looking for safeish yield, what better?
42TE and a few Finance sector bonds don't really cut it.

V8

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Re: Preference Shares v Ordinary

#304603

Postby OwenSwansea » April 30th, 2020, 8:12 pm

It would not surprise me if the Institutions hold even more Aviva Prefs. now, than they have previously.

Owen.

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Re: Preference Shares v Ordinary

#310944

Postby OwenSwansea » May 22nd, 2020, 11:13 am

With the UK now leaving the EU, will Preference Shares still not count towards a firm’s regulatory capital requirements after 2026?

Owen.

(PS. No one can give me a logical reason why Preference Shares should not count towards regulatory capital requirements.)

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Re: Preference Shares v Ordinary

#311207

Postby ursaminortaur » May 22nd, 2020, 8:26 pm

OwenSwansea wrote:With the UK now leaving the EU, will Preference Shares still not count towards a firm’s regulatory capital requirements after 2026?

Owen.

(PS. No one can give me a logical reason why Preference Shares should not count towards regulatory capital requirements.)


As far as I am aware this is a requirement of Basel III which is a global agreement from the international Basel committee rather than anything specific to the EU.

https://corporatefinanceinstitute.com/resources/knowledge/finance/basel-iii/

The Basel Committee

The BCBS was established in 1974 by the central bank governors of the Group of Ten (G10) countries, as a response to disruptions in financial markets. The committee was set up as a forum where member countries can deliberate on banking supervisory matters. BCBS is responsible for ensuring financial stability by strengthening regulation, supervision, and banking practices globally.

The committee was expanded in 2009 to 27 jurisdictions, including Brazil, Canada, Germany, Australia, Argentina, China, France, India, Saudi Arabia, the Netherlands, Russia, Hong Kong, Japan, Italy, Korea, Mexico, Singapore, Spain, Luxembourg, Turkey, Switzerland, Sweden, South Africa, the United Kingdom, the United States, Indonesia, and Belgium.

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Re: Preference Shares v Ordinary

#323730

Postby ChrisNix » July 4th, 2020, 3:29 pm

GoSeigen wrote:
Alaric wrote:Aviva were rather firmly told to stop disrupting the market in Prefs by claiming the existence of obscure interpretations and their right to use them that would enable them to pay off Pref holders at par.


There is nothing obscure about share capital reductions, they have been in UK Companies Acts since the WWII and probably before. Here is a recent article describing them in detail. A Google search will show that several companies have reduced their capital in recent months.

https://www.mondaq.com/uk/CorporateComm ... -Reduction


The above is maybe a Trumpism: i.e. " obscure interpretations" means the poster himself didn't know very much about capital reduction.

The weird thing about Aviva preference shares is that investors decided that the market price of £1.60+ implied certain things about the rights attached to the shares and that it was far more likely the lawyers reading the terms were wrong than that the market was wrong.


Aviva were strong-armed into backing down, that much is correct.


GS


Perhaps interesting to turn things around. If NatWest wishes to return NWBD capital, under the articles it must call a class meeting of pref holders and convince 75% that the price offered is fair. Aviva and Lloyds have no such protection.

Is an explicit right worth more than a 'moral' impediment? I'd have thought so.

However, Mr. Market disagrees, not for the first time!

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Re: Preference Shares v Ordinary

#323786

Postby 88V8 » July 4th, 2020, 8:21 pm

ChrisNix wrote:If NatWest wishes to return NWBD capital, under the articles it must call a class meeting of pref holders and convince 75% that the price offered is fair. Aviva and Lloyds have no such protection.
Is an explicit right worth more than a 'moral' impediment? I'd have thought so.
However, Mr. Market disagrees, not for the first time!

Mr Market on the whole probably doesn't read the prospectus.
Can one hold too much NWBD? It's safe-harbour status does impart a certain glow.

V8

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Re: Preference Shares v Ordinary

#327835

Postby Padders72 » July 22nd, 2020, 7:42 am

88V8 wrote:
ChrisNix wrote:If NatWest wishes to return NWBD capital, under the articles it must call a class meeting of pref holders and convince 75% that the price offered is fair. Aviva and Lloyds have no such protection.
Is an explicit right worth more than a 'moral' impediment? I'd have thought so.
However, Mr. Market disagrees, not for the first time!

Mr Market on the whole probably doesn't read the prospectus.
Can one hold too much NWBD? It's safe-harbour status does impart a certain glow.

V8


A safe stake in a toxic institution though maybe...

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Re: Preference Shares v Ordinary

#327946

Postby daveh » July 22nd, 2020, 2:21 pm

Prefs have been going back up to pre -covid prices. Could have picked up NWBD at 108 on 23rd March for example, now back up at 155. Wish I'd bought a load then and locked in a very good yield. Unfortunately I didn't, I did pick up a small amount AV.B in April, but by then they were back up at 130 (in late March they were below 120).

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Re: Preference Shares v Ordinary

#328058

Postby Wizard » July 22nd, 2020, 10:55 pm

daveh wrote:Prefs have been going back up to pre -covid prices. Could have picked up NWBD at 108 on 23rd March for example, now back up at 155. Wish I'd bought a load then and locked in a very good yield. Unfortunately I didn't, I did pick up a small amount AV.B in April, but by then they were back up at 130 (in late March they were below 120).

I tried to buy NWBD and could not getting any reasonable quantity without the price jumping.

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Re: Preference Shares v Ordinary

#328152

Postby daveh » July 23rd, 2020, 12:12 pm

Wizard wrote:
daveh wrote:Prefs have been going back up to pre -covid prices. Could have picked up NWBD at 108 on 23rd March for example, now back up at 155. Wish I'd bought a load then and locked in a very good yield. Unfortunately I didn't, I did pick up a small amount AV.B in April, but by then they were back up at 130 (in late March they were below 120).

I tried to buy NWBD and could not getting any reasonable quantity without the price jumping.


In March when they were cheap or were you trying to buy recently? Your 'reasonable quantity' may be somewhat bigger than mine. My purchase size is usually in the 1-5K size and when I picked up AV.B the quote I accepted was within the spread shown on the LSE site.

Not sure why I chose AV.B over NWBD as I'd listed a number of prefs I was interested in and had planned to just buy the one with the highest yield on the day, but looking back its seems as if I should have been able to pick up NWBD at a better yield than AV.B.

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Re: Preference Shares v Ordinary

#328182

Postby Wizard » July 23rd, 2020, 1:31 pm

daveh wrote:
Wizard wrote:
daveh wrote:Prefs have been going back up to pre -covid prices. Could have picked up NWBD at 108 on 23rd March for example, now back up at 155. Wish I'd bought a load then and locked in a very good yield. Unfortunately I didn't, I did pick up a small amount AV.B in April, but by then they were back up at 130 (in late March they were below 120).

I tried to buy NWBD and could not getting any reasonable quantity without the price jumping.


In March when they were cheap or were you trying to buy recently? Your 'reasonable quantity' may be somewhat bigger than mine. My purchase size is usually in the 1-5K size and when I picked up AV.B the quote I accepted was within the spread shown on the LSE site.

Not sure why I chose AV.B over NWBD as I'd listed a number of prefs I was interested in and had planned to just buy the one with the highest yield on the day, but looking back its seems as if I should have been able to pick up NWBD at a better yield than AV.B.

Not at the absolute bottom for sure. But yes was looking for 100k, so quantity significantly different.


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