West Brom pibs

[GoSeigen]

I see another RNS, albeit void of any explanation. Perhaps it's time to write to the board and seek an explanation, these pibs are effectively stolen money and in the current interest rate environment, this situation is becoming increasingly absurd.
12th September 2023 rns.
The Board passed a resolution to make an interest payment in respect of the Society's PIBS of 1.5414% on 5 October 2023.

Sorry but to me that looks exactly correct. What sort of explanation do we need, and what has been stolen? Isn't it good news that we're finally getting the full coupon payment?

GS

[GoSeigen]

Very difficult to value these, but here's my very rough assessment.

Assuming:
1. Nothing bad happens to the business and it continues to be profitable
2. 5-yr gilt yields remain unchanged
3. The PIBS are not called in Apr 2026

then I make the 5-year running yield at current prices (75p offer) to be about 6%. That in itself is nothing special but in Apr 2026 the coupon rises to around 7.2%, so if the running yield is to be maintained after that date the market price will rise above par.

There is a differential equation in there, but pencilling in a simplistic 5p pa capital appreciation we get a total return of well above 10% CAGR.


That would be an underestimate if the PIBS are called next time, and an overestimate if gilt yields fall significantly before the step-up date.


GS

[NealMorris]

Thankyou for your information, I have now read all your posts a couple of times and can see the situation is not quite as bad as I imagined. The problem for me it seems, they have transformed what was once a simple investment into something that is difficult to understand (hardly ethical). On that basis alone, you would imagine they would to see fit to offer to buy them back at their original £1 valuation. Quite apart from that, you would think there would be easier and cheaper ways for them to handle their liabilities.

[Alaric]

The problem for me it seems, they have transformed what was once a simple investment into something that is difficult to understand (hardly ethical).

Some years ago, they made a ill-judged foray into equity release mortgages. Wasn't the complex reconstruction of the PIBS something that was done to keep them afloat?

[GoSeigen]

Thankyou for your information, I have now read all your posts a couple of times and can see the situation is not quite as bad as I imagined. The problem for me it seems, they have transformed what was once a simple investment into something that is difficult to understand (hardly ethical). On that basis alone, you would imagine they would to see fit to offer to buy them back at their original £1 valuation. Quite apart from that, you would think there would be easier and cheaper ways for them to handle their liabilities.

I have sympathy regarding the complexity, but can one really blame the Society given the situation the banking system faced in June 2009 when the terms of the PIBS were "transformed" as you call it? I expect their negotiations with the subordinated debt holders and the regulator were fraught and their hand was very likely forced.

Furthermore, provided profitability continues, the terms are now (as of the recent RNS) in a practical sense identical to when the PIBS were issued in 2005: these PIBS always had a step-up call option every 5 years from 2021. If any investor didn't know that they really should have read the issue documentation. And the Society can hardly be blamed for volatility in the 5-year gilt yield!


Should they make a tender offer? They already have! (£1 is in jest, right?) The only people who are holding now are those who rejected the tender or purchased their PIBS after the tender, in which case they should be fully aware of all the conditions applying when they purchased, which have not been altered in any way since the tender.


So I have to say, I'm still a bit bemused at the flak being aimed at WBS. As for the PIBS, I think they potentially could give great returns still: long-term, given their 2.8% premium to 5-year gilts they should trade up and down either side of par. But this is just my opinion. Clearly the market thinks different at this moment.


GS

[GoSeigen]

The problem for me it seems, they have transformed what was once a simple investment into something that is difficult to understand (hardly ethical).

Some years ago, they made a ill-judged foray into equity release mortgages. Wasn't the complex reconstruction of the PIBS something that was done to keep them afloat?

Ancient history, 2009, more than fourteen years ago.

GS

[Jwdool]

One interesting consequence of this move up in gilt yields has been to provide support for fixed income instruments/ PIBS that are linked to those prices. The WBS PIBS issue is. Unsurprisingly there have been buyers in this name - that could be a candidate for a par call in Feb 2026. Current trading price is ~76-80p. The 5 year gilt is ~4.64% (plus 280bps premium).

The usual caveats apply along with other bits and pieces in this thread. All other things being equal, I'd expect this price to continue climbing as long as 5 year yields remain here or higher.

[BondSquared]

Any views on the West Brom CCDS? Do they ever trade in retail? I note they're listed in Lux, not LSE.

[Jwdool]

No view on the CCDS, but given the PIBS rank senior to CCDS - you'd be better buying those for a similar yield (or higher yield on YTM if called). You could also look at theT2 11% 2028 - which look great value as well.

[daveh]

I don't hold but I saw the results are out today:
https://www.investegate.co.uk/announcem ... 23/7912282

They look decent which should be good for the PIBS

Key Highlights of the 2023/2024 half year financial year


· New lending applications of £945m (6 months to 30 September 2022: £609m), with completions of £458m up 66% year on year (6 months to 30 September 2022: £276m) reflecting our focus on supporting people into home ownership. Overall, net lending for owner occupiers strengthened to £161.8m, contributing to growth in the mortgage book.

· Lending for first-time buyers represented 62% of lending for home purchase (30 September 2022: 68%) with 1,398 first-time buyers supported during the period (30 September 2022: 711).

· Maintained our Standard Variable Rate (SVR) well below the industry average through the period. For a borrower at the West Brom, this equates to a saving of circa £1,600 a year for each £100,000 borrowed compared with an average market SVR of 8.09%1.

· Savers rewarded with rates that were on average, by the end of the six months, almost one and a half times the average rates paid by the market2 (30 September 2022: two and a half times) equivalent to a member benefit of £39.1m (2022/23: £25.5m).

· Capital position remains strong with the Common Equity Tier 1 (CET 1) capital ratio at 18.5% (31 March 2023: 18.7%), giving capacity for the buyback of expensive Tier 2 subordinated debt which will reduce the Society's interest costs going forward by £2.2m per annum.

· Statutory profit before tax of £13.6m (30 September 2022: £18.1m); excluding the cost of the buyback of Tier 2 subordinated debt (£5.1m), profit before tax ended the period at £18.7m. This was driven by strong net interest income which outweighed the impact of lower fair value gains and a reduction in the value of investment properties.

· Consistently strong feedback, with customer satisfaction and a Net Promoter Score®3 unchanged at 95% and +74 respectively. Shortlisted for the 'First-time Mortgage Buyers' Choice' award and the 'High Street Mortgage Provider of the Year' awards at the Moneyfacts Consumer Awards 2024.

· Reached the significant milestone of £1 million raised for Birmingham Children's Hospital, the vast majority of which was raised through the generosity of our members over the last 16 years via our Red Balloon Appeal account.

[Jwdool]

Very strong results. The market is currently ~75p bid with limited supply. As we approach the reset, this security will tend towards 100p. Remarkably high returns available at these levels for a highly profitable society. The PIBS legacy is likely to tempt the society into a tender or outright call towards Feb '26.

[GoSeigen]

Very strong results. The market is currently ~75p bid with limited supply. As we approach the reset, this security will tend towards 100p. Remarkably high returns available at these levels for a highly profitable society. The PIBS legacy is likely to tempt the society into a tender or outright call towards Feb '26.

Well well well, I've just had a look at the terms of the PIBS and see that they can be called actually on ANY interest payment date, whereas I thought it was just on reset dates. How could I have missed that for more than ten years of owning this share?

Agree strong results and the business is and will remain awash with cash. Surely a call is coming in a couple of years' time? If so it's a good 15% YTC at current price.


GS

[Jwdool]

I've been trying to pick some of these up all week, but struggling to find any supply at all. I suspect we'll see the price into the 80s next week as the market finds a new equilibrium post-results.

[Jwdool]

As predicted WBS now 80p bid. It would appear there is limited if any supply of these notes. Given the optional call at par is available every 6 months and the results have been stunning, it would be unsurprising to see these notes trade higher from here.

[88V8]

As predicted WBS now 80p bid. It would appear there is limited if any supply of these notes. Given the optional call at par is available every 6 months and the results have been stunning, it would be unsurprising to see these notes trade higher from here.

ii have it flagged as 'not available to trade'.

V8