Santander UK plc preference share (SAN v SANB) mispricing

[OldBoyReturns]

While reinvesting some of my BOI tender proceeds in Santander 10.375% prefs (SAN) I noticed an apparently significant pricing discrepancy compared to the 8.625% prefs (SANB).

I bought SAN for 128 so a dirty yield of 8.1% or 8.4% adjusting for the dividend accrued in the price (goes ex div next week I think)

Meanwhile SANB is 124 (nearly same price as SAN) to buy so a dirty yield of 6.9%.

The only explanation I can think of is that the search functions on the LSE website and most brokers platforms do not recognise the existance of SAN

[88V8]

I bought SAN for 128 so a dirty yield of 8.1% or 8.4% adjusting for the dividend accrued in the price (goes ex div next week I think)

The only explanation I can think of is that the search functions on the LSE website and most brokers platforms do not recognise the existence of SAN

Yes, I'd noticed that and lazily assumed they had been retired or otherwise done away with.
How did you buy them? Phone?

V8

[hostye]

Agreed - I posted about this opportunity on here in June this year

[Wozzitworthit]

I got on-line prices an hour or so ago from HL for a real purchase and was quoted 129.3p for SAN and 123.8 for SANB

I had never considered these, as I am a bit wary of how Santander will retire these by 2026, a feeling that I think others may have,( or may have had)

I'll sleep on it

Woz

[88V8]

I had never considered these, as I am a bit wary of how Santander will retire these by 2026, a feeling that I think others may have,( or may have had).

Yes, I held both SAN & SANB but sold both for that reason. Now however I think or hope the FCA would jump on any issuer who tried to play clever beggars.
So I might come back in but it would have to be a better yield than the 7.4% currently available for GACA.

V8

[hostye]

I am happy to be corrected but as far as I am aware pref shares have ceased to be qualifying regulatry capital for uk banks for several years now. There is no obligation for banks to retire preference shares, they just dont qualify as capital now so banks may look to tender as in the case of BOI recently. In 2026 insurance companies will no longer be able to use preference shares as qualifying capital, again there is no obligation for the prefs to be repaid etc but it will likely make sense for insurers to do so and replace with new forms of capital.

[OldBoyReturns]

I bought SAN for 128 so a dirty yield of 8.1% or 8.4% adjusting for the dividend accrued in the price (goes ex div next week I think)

The only explanation I can think of is that the search functions on the LSE website and most brokers platforms do not recognise the existence of SAN

Yes, I'd noticed that and lazily assumed they had been retired or otherwise done away with.
How did you buy them? Phone?

V8

You can buy SAN online on ii and HL. It just takes a bit of creative thinking to find them on the platforms!

[Laughton]

The only explanation I can think of is that the search functions on the LSE website and most brokers platforms do not recognise the existance of SAN

I wonder if this is a throwback to the days when SAN dividends were taxed even though held in an ISA?

Anyway, just bought a few more via iDealing, no problem there although maybe that's something to do with me already holding quite a few with them.

[Wozzitworthit]

A bit of poking around on the LSE website shows that SANB is classified as Equity and SAN classified as a Bond

Edit - their classification

[stevensfo]

Yes, I'd noticed that and lazily assumed they had been retired or otherwise done away with.
How did you buy them? Phone?

V8

You can buy SAN online on ii and HL. It just takes a bit of creative thinking to find them on the platforms!

No creative thinking required for ii. You just type in SAN or SANB. Both listed as Pref shares and as you say, can be bought online.

The only thing that annoys me about ii is when they suddenly don't allow certain shares to be included in their Regular Dealing dates.

Or restrict some shares to those experienced/informed investors (can't remember the exact term) and make you take a short test.

I always pass the test, but then ask about Enron and Woolworth shares.

Steve

[digitaria]

ii gave me an online quote of 130.2 to buy SAN.
I actually have a couple of tranches of SANB. It would seem a no-brainer to switch the latter into the former, for a small yield increase.

[Padders72]

You can buy SAN online on ii and HL. It just takes a bit of creative thinking to find them on the platforms!

No creative thinking required for ii. You just type in SAN or SANB. Both listed as Pref shares and as you say, can be bought online.

The only thing that annoys me about ii is when they suddenly don't allow certain shares to be included in their Regular Dealing dates.

Or restrict some shares to those experienced/informed investors (can't remember the exact term) and make you take a short test.

I always pass the test, but then ask about Enron and Woolworth shares.

Steve

Actually this isn't true, with ii at least. If you type in SAN into the bottom of the page search bar you don't get the instrument in question, you get a long list inc BNC (the ords). If you add the B you get SANB. You have to type in Santander to get SAN. Just saying. There is some truth in the suggestion that SANB is easier to find, but both are tricksy. To be clear, a search for "SAN" finds neither SAN or SANB.

[stevensfo]

No creative thinking required for ii. You just type in SAN or SANB. Both listed as Pref shares and as you say, can be bought online.

The only thing that annoys me about ii is when they suddenly don't allow certain shares to be included in their Regular Dealing dates.

Or restrict some shares to those experienced/informed investors (can't remember the exact term) and make you take a short test.

I always pass the test, but then ask about Enron and Woolworth shares.

Steve

Actually this isn't true, with ii at least. If you type in SAN into the bottom of the page search bar you don't get the instrument in question, you get a long list inc BNC (the ords). If you add the B you get SANB. You have to type in Santander to get SAN. Just saying. There is some truth in the suggestion that SANB is easier to find, but both are tricksy. To be clear, a search for "SAN" finds neither SAN or SANB.

That's weird. I am using Firefox browser. I open ii.co.uk

At the top right are the three buttons: Search, Login, Sign Up.

I press Search and type SAN.

It shows the first three shares. I choose 'Show more' and SAN is in the list. No problem.

Steve

[Borderline]

By way of background SANB and SAN were both issued by Abbey National Plc in 1997 before the take over by Santander in 2004.
The prospectuses can be easily found on Google but are a bit buried in the Santander site.
I’ve had a dig around in my files and found some info I downloaded when the “associated tax credit” was an issue and updated it.
It may help, but then again it may not.
[a favourite quote of my dear departed Mother in Law]

Santander UK plc Sterling Preference shares
What are the dividends on the Santander UK plc Sterling Preference Shares?
There are two series of Santander UK plc Sterling preference shares in issue: 10.375% and 8.625%. The cash dividend is paid net of the "associated tax credit" which is available to individuals who are UK tax residents. Under current law the cash dividend is: 9.3375% and 7.7625%.
What is the maturity date?
Each series of preference shares is perpetual. Santander UK plc does not have any rights to redeem the preference shares, but it does have the authority by way of shareholders' resolution to repurchase them provided that the Financial Services Authority agrees to this at the time of repurchase.

From 2019 notice of the AGM [although this has been standard for many years]:

Santander UK plc - Notice of AGM
1 May 2019
NOTICE IS HEREBY GIVEN that the 2019 Annual General Meeting (“AGM”) of the Company will be held at 2 Triton Square, Regent’s Place, London, NW1 3AN on 2 May 2019 at 10.00 a.m. to consider and, if thought fit, to pass the resolutions set out below:
Special Resolutions
7. THAT the Company be authorised, without conditions, to buy back its own 85/8% preference shares. The following terms apply:
(a) The Company may buy back up to 125,000,000 85/8% preference shares;
(b) The lowest price which the Company can pay for 85/8% preference shares is 75% of the average of the market values of the preference shares for five business days before the purchase is made; and
(c) The highest price (not including expenses) which the Company can pay for each 85/8% preference share is 125% of the average of the market values of the preference shares for five business days before the purchase is made.
 
This authority shall begin on the date of the passing of this resolution and end on the conclusion of the next Annual General Meeting of the Company. The Company may agree, before this authorisation ends, to buy back its own 85/8% preference shares even though the purchase may be completed after this authorisation ends. 
8. THAT the Company be authorised, without conditions, to buy back its own 103/8% preference shares. The following terms apply:
(a) The Company may buy up to 200,000,000 103/8% preference shares;

[Same terms as above]

And from the Articles of Association:

The following is a summary of the Articles of Association (the ‘Articles’) of Santander UK plc (the ‘Company’ or ‘Santander UK’).
Santander UK is a public company registered in England and Wales, registered number 2294747. The Articles do not specifically state or limit the objects of the Company which are therefore unrestricted.

Subject to the provisions of the UK Companies Act 2006, all or any of the rights attached to any class of shares (whether or not the Company is being wound up) may be varied with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. Additional quorum and voting requirements apply to such meeting.

[88V8]

By way of background SANB and SAN were both issued by Abbey National Plc in 1997 before the take over by Santander in 2004.
The prospectuses can be easily found on Google but are a bit buried in the Santander site.
I’ve had a dig around in my files and found some info I downloaded when the “associated tax credit” was an issue and updated it.
What are the dividends on the Santander UK plc Sterling Preference Shares?
There are two series of Santander UK plc Sterling preference shares in issue: 10.375% and 8.625%. The cash dividend is paid net of the "associated tax credit" which is available to individuals who are UK tax residents. Under current law the cash dividend is: 9.3375% and 7.7625%.

That rings a bell. There was some hooha about them not paying the full divi, irrc in the end they had to pay the headline rate ... I may be mistaken... if not, the yield is not as good as it appears..

V8

[88V8]

The cash dividend is paid net of the "associated tax credit" which is available to individuals who are UK tax residents. Under current law the cash dividend is: 9.3375% and 7.7625%.

That rings a bell. There was some hooha about them not paying the full divi, irrc in the end they had to pay the headline rate ...

While I was cutting the hedge, I remembered, there was a 10% Tax Credit, which was abolished (by Gordon Brown?) but Santander continued paying the reduced amount, until there were complaints, whereafter they began paying the full divi.

V8