The Lemon Fool

Strange - I have an account with iDealing and just obtained a quote online from them for 2,000 WBS @ 62p.

I didn't push the BUY button becasue I didn't want to buy them so it's possible that the order wouldn't have completed I guess.

Six month results for MBS are just out.
Circa 22 million in damages costs and interest received with a bit more to come.
Profit of £20.446 for the period after tax.
Expect to pay coupons this autumn, but say still doubt over ability to pay them over the medium to long term.

I would expect the next step to be a tender offer, it makes no sense to keep these PIBS on their balance sheet.

Setanta.

Looking at their capital position, MBS could pay back all their PIBS and subordinated debt, and they would still have a very strong capital position. Their RWAs are circa £120 million, and their CET1 is £26.6 million. So CET1 ratio would still be around 20% allowing a little for expenses and pricing over par.

Now that coupons are resuming, they will have to shell out circa £1.4 million a year for PIBS coupons on capital that is of no benefit to them. There was a small profit this six months before exceptional items and tax, but this would have been a loss if they had had to pay £0.7 million in PIBS coupons.

Even if they do decide to stay independent and open for new loans (which is unlikely), the PIBS are still a millstone.

So one way or another, they will looking to shed these as soon as possible.

Setanta.

I'm looking forward to receiving some coupons here. Its been a long time!

With regards any tender offer, apologies I'm not very knowledgeable on such things, but does anyone know if they will be able to force us to accept the £1 nominal or would they have to offer something that was market comaparable as in the recent poorly taken up NWBD tender offer?

C

Setanta wrote:Looking at their capital position, MBS could pay back all their PIBS and subordinated debt, and they would still have a very strong capital position. Their RWAs are circa £120 million, and their CET1 is £26.6 million. So CET1 ratio would still be around 20% allowing a little for expenses and pricing over par.

Now that coupons are resuming, they will have to shell out circa £1.4 million a year for PIBS coupons on capital that is of no benefit to them. There was a small profit this six months before exceptional items and tax, but this would have been a loss if they had had to pay £0.7 million in PIBS coupons.

Even if they do decide to stay independent and open for new loans (which is unlikely), the PIBS are still a millstone.

So one way or another, they will looking to shed these as soon as possible.

Setanta.

PIBS payments will be just over £1m per year (8% on £5m, 6.75% on £9.788m). They are currently making payments of around £535k on subordinated loans, £5m of which is due to be repaid next year, £4.2m in 2023 and £5m in 2032. Unfortuneately the 2032 loan is at 6.7%, so amounts to £335k.

I would not describe the PIBS as being of no benefit. They are being grandfathered into T2 and the coupon payments are not mandatory, unlike the subordinated loan coupons.

carnie wrote:I'm looking forward to receiving some coupons here. Its been a long time!

With regards any tender offer, apologies I'm not very knowledgeable on such things, but does anyone know if they will be able to force us to accept the £1 nominal or would they have to offer something that was market comaparable as in the recent poorly taken up NWBD tender offer?

C

They cannot force you to accept £1 nominal unless they wind up the building society. However, this is the track they are currently going down! So the question is whether they continue down that track, paying PIBS coupons for the next several years or however long it takes to wind up/dispose of the loan book, or whether they choose to start lending again (or merge with another BS).

Building societies are supposed to act in the best interests of members and PIBS holders are members, so I would not expect any shenanigans with respect to the PIBS.

Great to have confirmation of the resumption of coupons and I really cannot see why payments should not continue, unless there are substantial mortgage defaults not covered by assets, which seems unlikely.

Setanta wrote:Six month results for MBS are just out.
Expect to pay coupons this autumn....

Assuming the yield will settle around 6%+ we can soon expect a significant uplift in the SP, perhaps even starting Monday.

OTOH, it would be strange to remain invested long-term in a Society that's being wound up with an implied par redemption, so perhaps the yield will be nearer 6%++.

Anyway, it will be nice to see some coupons.
Just had a payment on the ENQ1, cash instead of PIKs.
The good times are gonna roll.

V8

88V8 wrote:

Setanta wrote:Six month results for MBS are just out.
Expect to pay coupons this autumn....

Assuming the yield will settle around 6%+ we can soon expect a significant uplift in the SP, perhaps even starting Monday.

OTOH, it would be strange to remain invested long-term in a Society that's being wound up with an implied par redemption, so perhaps the yield will be nearer 6%++.

Anyway, it will be nice to see some coupons.
Just had a payment on the ENQ1, cash instead of PIKs.
The good times are gonna roll.

V8

We need more guidance from MBS over their strategy. Continuing down the current path, intending to wind up, is a relatively safe course for PIBS holders as it gives a very high likelihood of repayment of capital in 5-10 years plus coupon payments. They are unlikely to be very profitable during runoff, but that is a problem for PPDS holders, not PIBS holders.

OTOH, re-launching MBS is more risky, but if successful would be good for PIBS prices.

ps, yes good news re Enqest bonds. First cash payment in 2 years. Prices nicely up as well, so no harm done collecting those PIKs!

The price hasn't moved up much, but I can only get a quote in a few thousand to buy so IMO market makers are trying to accumulate a few more before moving the price up. If anyone is selling at these prices though they need their head examined.

The headline warnings about going concern are being given too much prominence in my view. The reasons cited in the actual report are silly:

the Society remains at risk that an external stress event such as a severe downturn in the housing market in either the UK or Spain, a regulatory requirement to hold additional capital or a change in accounting standards, could result in a further breach. There remains, therefore, uncertainty over the Group’s ability to make coupon payments in the medium to long term.

They are basing the going concern and coupon payment assessment on risks that are wildly exceptional; this is not what going concern means and those risks to the coupon are remote. I think therefore that investors should look through this to a Society that is over-capitalised now and whose business is not generating worrying losses and whose assets far exceed its debts (15% -- probably best in sector) with ample liquidity.

I'm not buying because I have no cash and offered sizes are too small but I'd say this is even more mispriced than immediately before the judgement when there was still considerable uncertainty. You won't get rich buying this stock now, but the approx 8% running yield in a low-rate environment is absurd.

[Disclosure] You can accuse me of talking my book as I am very long MBSR, but there it is...

GS

88V8 wrote:

Setanta wrote:Six month results for MBS are just out.
Expect to pay coupons this autumn....

Assuming the yield will settle around 6%+ we can soon expect a significant uplift in the SP, perhaps even starting Monday.

OTOH, it would be strange to remain invested long-term in a Society that's being wound up with an implied par redemption, so perhaps the yield will be nearer 6%++.

Anyway, it will be nice to see some coupons.
Just had a payment on the ENQ1, cash instead of PIKs.
The good times are gonna roll.

V8

My gut says the latter will prevail and yields for both will settle at around 7% reflecting the medium to long term uncertainty. GS and HRP make a convincing case that the caveats in the release are overblown but I still think there will be nagging doubts here for a while and the market will price in a significantly higher risk than elsewhere. That would give a capital upside from here of around 15% so still further to go, just not as far as 3 months ago!

hiriskpaul wrote:

GoSeigen wrote:Is it my imagination or have market makers switched to quoting clean prices for MBSR/MBSP in the last day or two [i.e. accrued interest added as a separate item -- whereas accrued interest was zero before so clean/dirty pricing made no difference]?

GS

It seems that way now at Hargreaves Lansdown. Very interesting!

I'm really confused about the pricing now. HL states explicitly that quotes are on a clean-price basis, yet their prices are the same as other brokers who seemingly are quoting on a dirty basis. Has anyone traded very recently, and can they shed light on this? Maybe a call is now needed to the various brokers to remind them that the coupons will be paid and quotes should be moved to a clean basis ASAP.

GS

GoSeigen wrote:

hiriskpaul wrote:

GoSeigen wrote:Is it my imagination or have market makers switched to quoting clean prices for MBSR/MBSP in the last day or two [i.e. accrued interest added as a separate item -- whereas accrued interest was zero before so clean/dirty pricing made no difference]?

GS

It seems that way now at Hargreaves Lansdown. Very interesting!

I'm really confused about the pricing now. HL states explicitly that quotes are on a clean-price basis, yet their prices are the same as other brokers who seemingly are quoting on a dirty basis. Has anyone traded very recently, and can they shed light on this? Maybe a call is now needed to the various brokers to remind them that the coupons will be paid and quotes should be moved to a clean basis ASAP.

GS

Definitely confusing. For online trades HL are not displaying accrued interest despite HL saying prices are "clean".

ps, I take it back! HL now quoting 118 days interest for online MBSR deals.

Pps ... but only on buy orders

Ppps 134 days accrued on MBSP. HL clean price to buy 3k nominal MBSR 102.2, MBSP 95.9. To sell MBSR 98 for 10k, 97.2 for 50k. I don't hold MBSP so cannot obtain a sell quote.

Bought 10k of MBSP at 95.9 plus £247.13 accrued. All I could get!

hiriskpaul wrote:

GoSeigen wrote:

hiriskpaul wrote:It seems that way now at Hargreaves Lansdown. Very interesting!

I'm really confused about the pricing now. HL states explicitly that quotes are on a clean-price basis, yet their prices are the same as other brokers who seemingly are quoting on a dirty basis. Has anyone traded very recently, and can they shed light on this? Maybe a call is now needed to the various brokers to remind them that the coupons will be paid and quotes should be moved to a clean basis ASAP.

GS

Definitely confusing. For online trades HL are not displaying accrued interest despite HL saying prices are "clean".

ps, I take it back! HL now quoting 118 days interest for online MBSR deals.

Pps ... but only on buy orders

Ppps 134 days accrued on MBSP. HL clean price to buy 3k nominal MBSR 102.2, MBSP 95.9. To sell MBSR 98 for 10k, 97.2 for 50k. I don't hold MBSP so cannot obtain a sell quote.

Even from HL alone, some quotes seem clean, some dirty, but the total price appears to adjust correctly. Probably depends which MM the quote is being supplied from?

GS

GoSeigen wrote:

hiriskpaul wrote:

GoSeigen wrote:
I'm really confused about the pricing now. HL states explicitly that quotes are on a clean-price basis, yet their prices are the same as other brokers who seemingly are quoting on a dirty basis. Has anyone traded very recently, and can they shed light on this? Maybe a call is now needed to the various brokers to remind them that the coupons will be paid and quotes should be moved to a clean basis ASAP.

GS

Definitely confusing. For online trades HL are not displaying accrued interest despite HL saying prices are "clean".

ps, I take it back! HL now quoting 118 days interest for online MBSR deals.

Pps ... but only on buy orders

Ppps 134 days accrued on MBSP. HL clean price to buy 3k nominal MBSR 102.2, MBSP 95.9. To sell MBSR 98 for 10k, 97.2 for 50k. I don't hold MBSP so cannot obtain a sell quote.

Even from HL alone, some quotes seem clean, some dirty, but the total price appears to adjust correctly. Probably depends which MM the quote is being supplied from?

GS

That would make sense. The broker is picking the best all-in price from the MMs. No doubt they will all switch to clean pricing soon.

Am i correct to think that we should hear from Manchester BS in the next few days whether they can pay the october coupon on their PIBs?

MBSP/R have continued to edge up over the past month.....

Interest due date for the 6.75% PIBS (MBSP) is Wednesday 13th October and a statement about interest payable is due not more than 30-days prior to that date. So any day now.

Y

Zow1 wrote:Am i correct to think that we should hear from Manchester BS in the next few days whether they can pay the october coupon on their PIBs?

MBSP/R have continued to edge up over the past month.....

UIAM it's already been as good as announced in the recent half year report.

GS

GoSeigen wrote:

Zow1 wrote:Am i correct to think that we should hear from Manchester BS in the next few days whether they can pay the october coupon on their PIBs?

MBSP/R have continued to edge up over the past month.....

UIAM it's already been as good as announced in the recent half year report.

GS

I am more than happy if you are correct, but my reading is that they were waiting to see what the total compensation reward will be "...including costs and interest on damages", before they make a final announcement on the october coupon payment. Small chance it will be postponed for another 6 months, no?

Zow1 wrote:

GoSeigen wrote:

Zow1 wrote:Am i correct to think that we should hear from Manchester BS in the next few days whether they can pay the october coupon on their PIBs?

MBSP/R have continued to edge up over the past month.....

UIAM it's already been as good as announced in the recent half year report.

GS

I am more than happy if you are correct, but my reading is that they were waiting to see what the total compensation reward will be "...including costs and interest on damages", before they make a final announcement on the october coupon payment. Small chance it will be postponed for another 6 months, no?

I don't think so. The regulatory justification ("doesn't meet qualitative...blah blah blah") for stopping the payments has gone, according to the report, and I can't see anything now preventing payment.

GS