NWBD regrets?

[oldgamer]

Thank you, I did not know that. I take it circumstances need to be somewhat exceptional regarding a capital reduction?

I have been mostly cash for some time - fortunately price falls in the prefs are exceeding what I’m losing via inflation. Prices were around here during covid but I got greedy and missed out. I have no idea where I could park it until next year though so resigned to do nothing. Of course if NWBD hit 90p I probably still wouldn’t buy as it would no doubt feel like the world was ending and they were heading lower…

[GoSeigen]

Thank you, I did not know that. I take it circumstances need to be somewhat exceptional regarding a capital reduction?

Capital reduction is a standard procedure, it's one of only three ways that UK Company Law permits a public company to purchase its own shares (the other two being redemption, if the share is redeemable, or a shareholder-approved purchase out of distributable profits). However there are usually hurdles to be overcome, sometimes a restriction in the company's Articles, perhaps more often the requirement for shareholder approval where the division of votes might prevent the capital reduction.

I have been mostly cash for some time - fortunately price falls in the prefs are exceeding what I’m losing via inflation. Prices were around here during covid but I got greedy and missed out. I have no idea where I could park it until next year though so resigned to do nothing. Of course if NWBD hit 90p I probably still wouldn’t buy as it would no doubt feel like the world was ending and they were heading lower…

Ah, now you can plan for that -- so that you'll buy because the plan says you must...

GS

[88V8]

...would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs ...

I think Aviva are safe now in view of the wigging they got.
I would not buy Lloyds and in any case one way or another most of the bank prefs will likely be retired before 2024.
NWBD do seem 'safe'.

Likewise BWRA were deemed safe when this was discussed on TMF, and I do not think Ecclesiastical would do the dirty on us so ELLA are safe.

That said I would not bet the store on individual instruments, if you really want FI then I would put some in ITs.... Axiom AXI, some in NCYF, some in Shires SHRS and some in Middlefield MCT. The yields of MCT and SHRS are relatively modest at the mo.

As to where you park your dosh, Enquest ENQ1 the 7% PIK is available at sub-par and as Hirisk has pointed out, the price is underpinned by the 2023 redemption. Or ENQ2 9% 2027 with a higher running yield.

Like you, as regards FI, I am sitting on my hands until interest rates top out and prices stop falling.

V8

[bruncher]

...would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs ...

I think Aviva are safe now in view of the wigging they got.
.... one way or another most of the bank prefs will likely be retired before 2024.
............

V8

Is the 'retirement' process different from the three possibilities mentioned earlier in this thread by GS - redemption, capital reduction, or re-purchase?

[ChrisNix]

I hope nobody considers this a partial hijack of the thread, but the the title caught my eye. I am full of regret for selling NWBD the better part of ten years ago. The falling prices do seem like a second a chance. I am looking at retiring in around 10 years, the current yields of NWBD and LLPC are very attractive to me, but am inclined to wait until interest rates are a little higher. I would be looking to invest my entire portfolio in FI or prefs, I am somewhat out of touch of what issues could be redeemed at par or are illiquid and the relative risks, for example would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs (re behaviour of lloyds and Aviva’s attempt at a redemption a few years ago). More generally, could anyone share what percentage of their FI portfolio they would assign to each one of these or similar FI investments?

Just to be clear, none of those shares are redeemable. Aviva didn't try to redeem them, they informed the market that they were able to repay holders via a capital reduction. A capital reduction is not an unfettered right of the company like redemption: it can only be exercised with the approval of shareholders, the sanction of the High Court and subject to whatever contractual terms restrict such capital reductions. NWBD seems invulnerable to capital reduction; LLPC and Aviva prefs not so much. However you will hopefully understand from the above caveats that the risk of capital reduction at a par price is share-specific and in any case probably not very high.

Preference shares are cheaper than they have been by some 200bp of yield. On the other hand inflation has risen by some 10%, so the value is not really clear-cut. As usual, whether to buy is probably a tricky call to make; what I do in these circumstances is to leg in to the trade gradually, giving the market time to confirm my buy decision.

GS

When GoSeigen says 'invulnerable', he means not possible without the sanction of holders of 75% of the preference shares voting at a class meeting to consider such a reduction. A bit like Achilles!

[ChrisNix]

...would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs ...

I think Aviva are safe now in view of the wigging they got.
I would not buy Lloyds and in any case one way or another most of the bank prefs will likely be retired before 2024.
NWBD do seem 'safe'.

Likewise BWRA were deemed safe when this was discussed on TMF, and I do not think Ecclesiastical would do the dirty on us so ELLA are safe.

That said I would not bet the store on individual instruments, if you really want FI then I would put some in ITs.... Axiom AXI, some in NCYF, some in Shires SHRS and some in Middlefield MCT. The yields of MCT and SHRS are relatively modest at the mo.

As to where you park your dosh, Enquest ENQ1 the 7% PIK is available at sub-par and as Hirisk has pointed out, the price is underpinned by the 2023 redemption. Or ENQ2 9% 2027 with a higher running yield.

Like you, as regards FI, I am sitting on my hands until interest rates top out and prices stop falling.

V8

If one measures safety by the criterion of whether or not the instrument can be appropriated by the issuer at below the market price, only NWBD and BWRA qualify.

[oldgamer]

Thanks all, much appreciated.

[88V8]

...would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs ...

I think Aviva are safe ....BWRA were deemed safe

If one measures safety by the criterion of whether or not the instrument can be appropriated by the issuer at below the market price, only NWBD and BWRA qualify.

Yes, that was the context when this was dissected on TMF.

...would anyone here buy 100% of NWBD in favour of say one third NWBD, LLPC and Aviva prefs ...

I think Aviva are safe now in view of the wigging they got.
.... one way or another most of the bank prefs will likely be retired before 2024.
............

Is the 'retirement' process different from the three possibilities mentioned earlier in this thread by GS - redemption, capital reduction, or re-purchase?

It's a portmanteau, to avoid getting a ticking off from GS for using the wrong word

V8

[Bern]

Just concerned about the reference to financial prefs being "retired" by 2024 on this thread and no-one questioning it.

What Aviva said in 2018 after their change of heart was

"Aviva announces that it has decided to take no action to cancel its preference 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."

Further I can find no reference to any change to the 2026 date for change to regulatory capital.

Have I missed something? If not, whilst institutions could "retire" prefs by 2024, 2024 does not represent any sort of deadline.

[88V8]

Just concerned about the reference to financial prefs being "retired" by 2024 on this thread and no-one questioning it.
Have I missed something? If not, whilst institutions could "retire" prefs by 2024, 2024 does not represent any sort of deadline.

Hello and welcome.

You are correct.

It's my opinion.
I expect that while prices are low - which they will be for some time - instos will take the opportunity of retiring their Prefs via a market-price tender. 2023... 2024. They won't wait until 2026.
Just my opinion.

V8

[oldgamer]

iirc the NWBD low during the financial crisis was 26 or 28p, what do people think the low could be this time, i dont want to be greedy or miss the boat, so am wondering when to leg in (as GS) calls it? does anyone see it going below 110p for example?

thanks so much

[88V8]

....what do people think the low could be this time, i don't want to be greedy or miss the boat, so am wondering when to leg in (as GS) calls it? does anyone see it going below 110p for example?

Par? Why not.
Then Natwest can make a tender at 105p and hoover up a lot of them.

I wouldn't fear missing the boat. I think the FI price profile will be pretty flat-bottomed, even Rip van Winkle will have every chance.

V8

[oldgamer]

On the subject of tenders, does anyone know what % were returned last time, what would the endgame be for hold outs, do they become so illiquid you cannot trade them? Would natwest eventually make a very generous offer so they could retire the whole lot? The current yield in the current environment is very attractive to me, but losing 30% on a tender or some other forced outcome would be a bit of a disaster..

[MDW1954]

Is this thread not saying that NWBD is safe from forced redemption? That's the way that I read it. (Not a holder, but becoming interested.)

MDW1954

[88V8]

On the subject of tenders, does anyone know what % were returned last time...

viewtopic.php?p=512966#p512966

... what would the endgame be for hold outs, do they become so illiquid you cannot trade them? Would natwest eventually make a very generous offer so they could retire the whole lot?

You can hold out all you want... informed opinion is that the terms protect holders from any form of ... undesired retirement.

They might make a slightly generous offer relative to whatever market price at the time.

I hold, but am not a buyer until interest rates finish rising and the SP finishes falling.

V8

[oldgamer]

Thanks.

[Tara]

iirc the NWBD low during the financial crisis was 26 or 28p, what do people think the low could be this time, i dont want to be greedy or miss the boat, so am wondering when to leg in (as GS) calls it? does anyone see it going below 110p for example?

thanks so much

The low may already have been reached as I see that NWBD are up a few points today. The reality is that no one knows for sure where the low is. I personally don’t think it will go to 110p or even 125p. It is just as likely to go back to 150p again.

No harm though in slowly adding now if you are worried about missing the boat.

[88V8]

iirc the NWBD low during the financial crisis was 26 or 28p, what do people think the low could be this time, i dont want to be greedy or miss the boat, so am wondering when to leg in (as GS) calls it? does anyone see it going below 110p for example?

The low may already have been reached as I see that NWBD are up a few points today. The reality is that no one knows for sure where the low is. I personally don’t think it will go to 110p or even 125p. It is just as likely to go back to 150p again.
No harm though in slowly adding now if you are worried about missing the boat.

And now I look, I see the same for BWRA, ELLA, AV.A, even LLPC, an uptick in the last few days.
The market is relatively small so one insto deciding to get in could make a difference.

Doesn't make much sense to me with so many rate rises to come, see what happens after the next BoE rate raise this Thursday.

V8

[Noslien]

The price of these seems to be creeping up. Touched 140 now. Not sure how logical this; unless the market is convinced there is little real liklihood of high interest rates.

[ursaminortaur]

The price of these seems to be creeping up. Touched 140 now. Not sure how logical this; unless the market is convinced there is little real liklihood of high interest rates.

If it is just concern about interest rates then it looks like an over reaction as back in 2006 when the base interest rate was around 5% the price of NWBD was as high as 168.25 (or do they think interest rates are going to get much higher than that in the near future)

https://www.msn.com/en-gb/money/stockdetails/history/lon-nwbd/fi-bomvtc