MBSR/MBSP: Where do you hold them?

[Jwdool]

Interesting post above.
On MBSP, there is a call in 2030, which is likely, given the way PIBS are now viewed from a regs perspective. Additionally, the market tends to value lower priced securities (near or below par) at a slight premium to those at a higher rate. On this basis, I'd suggest the MBSP is perhaps a slightly better buy that the MBSR, although both are good names.

On WBS, I agree with the analysis - the price is highly likely to tend towards par as we move towards the reset date. It doesn't really matter whether these notes are called given the 280bps above the 5 year gilt at reset is a generous premium for which is now Tier 2.

Fair value is probably around 90p, given all the information above - but one needs to bear in mind the notes are linked to WBS profitability not falling below a benchmark linked to the old PPDS reserve. It is a complicated formula, but if WBS profits are around current levels, or better then these notes are likely to trade closer to other PIBS yields as we approach the end of next year. They are a reasonable buy here.

[Padders72]

Re MBSP, 98.75p to buy vs a call at presumably a quid in 2030? Personally I'd rather take the 0.25% higher yield MBSR has to offer and see that as preferable but of course YMMV. Both have served holders well, especially those who jumped in when prices were in the toilet a few years back.

[GoSeigen]

Interesting post above.
On MBSP, there is a call in 2030, which is likely, given the way PIBS are now viewed from a regs perspective. Additionally, the market tends to value lower priced securities (near or below par) at a slight premium to those at a higher rate. On this basis, I'd suggest the MBSP is perhaps a slightly better buy that the MBSR, although both are good names.

On WBS, I agree with the analysis - the price is highly likely to tend towards par as we move towards the reset date. It doesn't really matter whether these notes are called given the 280bps above the 5 year gilt at reset is a generous premium for which is now Tier 2.

Fair value is probably around 90p, given all the information above - but one needs to bear in mind the notes are linked to WBS profitability not falling below a benchmark linked to the old PPDS reserve. It is a complicated formula, but if WBS profits are around current levels, or better then these notes are likely to trade closer to other PIBS yields as we approach the end of next year. They are a reasonable buy here.

Agree with all that except the WBS payment formula, in my recollection it is linked to a reserve balance (i.e. cumulative profits) not just profits. Any losses would need to wipe out all prior accumulated profits before the interest payment is threatened. Have I got that wrong?

GS

[Jwdool]

The PPDS "deficit" was only filled in during the last financial year or so. I believe the cumulative profit assessment is correct - but this will rely upon WBS making sufficient profit to allow a "reserve" to be build up - so as to provide protection against a nominal deficit -from appearing at some point in the future. I don't believe this caveat will impact on the pricing of the PIBS unless WBS profits really take a hit. At the moment, the sector looks in good shape, so the PIBS look good value in the build up to the reset/ call.

[GoSeigen]

The PPDS "deficit" was only filled in during the last financial year or so. I believe the cumulative profit assessment is correct - but this will rely upon WBS making sufficient profit to allow a "reserve" to be build up - so as to provide protection against a nominal deficit -from appearing at some point in the future. I don't believe this caveat will impact on the pricing of the PIBS unless WBS profits really take a hit. At the moment, the sector looks in good shape, so the PIBS look good value in the build up to the reset/ call.

Oh that's good, I thought I'd missed something. According to my spreadsheet as of 2024 the reserve stands at £17m in surplus which is much larger than any single-year loss since 2010, so it would have to be a major problem to threaten the payments now I'd have thought. The first surplus was in 2022, payment changes trail the reserve figures by around 12 months or so.

GS

[hiriskpaul]

I received an online quote today to sell up to 40k nominal MBSR for 109, running yield 7.34%. Could not get an online quote for more than 40k. I am very overweight these, but looking for 7% before I start reducing so did not proceed, but thought it interesting that I could switch from MBSR to NOTP for a 0.2% uplift in yield.

For anyone seeking to diverse away from Newcastle BS, this might be of interest. Min dealing size of NOTP is 5k nominal with 5k increments, so you need to buy 5k, 10k, 15k, etc.

[GoSeigen]

There's also still a fairly wide spread (109-114) which implies to me that there are not many keen buyers at the moment. I don't want to be a seller when buyers are holding off, so like you I'm happy to collect the interest pending better prices or some change in the outlook. Occasionally I let go of a few to raise cash when I can get a good price -- last time was for 112p in Jan '24. My marginal borrowing rate is 6.9% so MSBR are slightly better.


GS

[GoSeigen]

There's also still a fairly wide spread (109-114) which implies to me that there are not many keen buyers at the moment. I don't want to be a seller when buyers are holding off, so like you I'm happy to collect the interest pending better prices or some change in the outlook. Occasionally I let go of a few to raise cash when I can get a good price -- last time was for 112p in Jan '24. My marginal borrowing rate is 6.9% so MSBR are slightly better.


GS

Just a heads-up: MBSR are trading with practically no buy/sell spread at around 108.75p, so a great time to buy or sell, whichever you were hoping to do. I let a few go today to pay for university fees.


GS

[Rhinocol]

Price still good. Managed to buy a few today 108.75. About 7.3% me thinks

[Rhinocol]

Update to the above . got my credit note even cheaper at 108.375

[GoSeigen]

Price still good. Managed to buy a few today 108.75. About 7.3% me thinks

@Rhinocol, you got some good prices there.


The relative performance of MBSP vs MBSR (Newcastle BS PIBS) since 2021 is interesting. At the time I thought MBSP was overpriced and switched entirely to MBSR. Then I was disappointed to see very little change in the price premium and wondered whether I'd wasted my time.

However, in the three years since, MBSR has indeed significantly outperformed MBSP -- by around two percentage points per year by my reckoning which is pretty big, and that's on top of MBSR's superior yield. So I'm not feeling so bad about the trade now, looks like it was the right thing to do.



In spite of the narrowing of premium, MBSR still have a slightly superior yield to MBSP at purchase prices of around 113.5p (for 6.93% yield) and 99p (6.8%) respectively. Both credits also compare favourably to perennial preference-share favourites like NWBD (6.2%), AV.A (6.3%) and even LLPC (6.5%) and have the added advantage of being debt, not shares.


Can holders expect continued outperformance or is the free lunch over?


GS