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Switch from Bank Pref to Equity

88V8
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Re: Switch from Bank Pref to Equity

#371796

Postby 88V8 » December 31st, 2020, 8:07 pm

88V8 wrote:....I sold most of my Prefs at the beginning of December.

But as a rider to the above, I actually bought a few more Aviva AV.B.
I don't believe they will pay silly Bs now, although 2026 is five years hence, who knows.

V8

ElectronicFur
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Re: Switch from Bank Pref to Equity

#376530

Postby ElectronicFur » January 13th, 2021, 11:37 am

johnhemming wrote:Its a good issue to raise with the FCA. Logically withdrawal at par would be thought to not be appropriate. Hence they may need to offer improved terms as did Lloyds some time ago.


John, did you ever raise this issue with the FCA?

I did email them for clarification about their Aviva censure. The FCA in it's censure press release on the 26th of October particularly drew attention to the fact the preference shares had been described as irredeemable at the time of issue.

So clearly they thought it pertinent to mention the fact they were described as irredeemable.

But they fobbed me off by stating they couldn't comment due to their "duty of impartiality", and when I pressed them further pointing out it falls under their regulatory objectives they just replied stating they couldn't comment due to https://www.fca.org.uk/freedom-informat ... -can-share

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Re: Switch from Bank Pref to Equity

#376535

Postby johnhemming » January 13th, 2021, 11:43 am

ElectronicFur wrote:John, did you ever raise this issue with the FCA?

I did raise it with the FCA and got a useless response so I sent another letter being more specific.

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Re: Switch from Bank Pref to Equity

#376555

Postby GoSeigen » January 13th, 2021, 12:13 pm

ElectronicFur wrote:
johnhemming wrote:Its a good issue to raise with the FCA. Logically withdrawal at par would be thought to not be appropriate. Hence they may need to offer improved terms as did Lloyds some time ago.


John, did you ever raise this issue with the FCA?

I did email them for clarification about their Aviva censure. The FCA in it's censure press release on the 26th of October particularly drew attention to the fact the preference shares had been described as irredeemable at the time of issue.

So clearly they thought it pertinent to mention the fact they were described as irredeemable.



Yes they thought it was pertinent because they immediately in the very next sentence made it very clear for all the Fools here who still think the shares cannot be repaid:

Para 4.3 [...] Nevertheless (due to the terms under which the shares were issued and section 641 of the Companies Act 2006) Aviva has the ability to cancel the shares at par, subject to a shareholder vote and court approval. Alternatively, any issuer wishing to cancel shares has the option of doing so on a voluntary basis by offering (tendering) to buy back such securities from the holders.

There you have it in black and white. The FCA also puts the blame squarely on the market for not understanding the above.

Now can we please leave the FCA alone on this matter?

GS

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Re: Switch from Bank Pref to Equity

#376563

Postby johnhemming » January 13th, 2021, 12:26 pm

GoSeigen wrote:Yes they thought it was pertinent because they immediately in the very next sentence made it very clear for all the Fools here who still think the shares cannot be repaid:


******* DELETED **********

Moderator Message:
Please don't say something, then say you shouldn't have said it, and then say it therefore shouldn't be discussed. That puts your fellow Fools in an impossible position with respect to having a debate. By the way if the item you proposed to raise (which I have deleted) is indeed relevant then say it again and debate only the point of law. Any tangential debate regarding controversial political aspects of it are liable to removal to the dungeons of PD in the normal way.
regards, dspp

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Re: Switch from Bank Pref to Equity

#376578

Postby ElectronicFur » January 13th, 2021, 1:29 pm

Yes they thought it was pertinent because they immediately in the very next sentence made it very clear for all the Fools here who still think the shares cannot be repaid


The press release did not say that actually. You are quoting from the Final Notice, not the Press Release.

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Re: Switch from Bank Pref to Equity

#376981

Postby 88V8 » January 14th, 2021, 11:19 am

GoSeigen wrote:........they immediately in the very next sentence made it very clear for all the Fools here who still think the shares cannot be repaid:

Para 4.3 [...] Nevertheless (due to the terms under which the shares were issued and section 641 of the Companies Act 2006) [b]Aviva has the ability to cancel the shares at par....


And I am sure that a significant percentage of investors and indeed quite a few market professionals, would still think that they cannot forcibly be repaid. After all, few people read The Fool, and who other than GS has really been pushing the point anyway... and even those who do read it don't always wish to take the point on board. Including, for a long time, me.

I do think that the headline description of securities merits some greater degree of clarity. It may be forgivable to describe a Breakfast Bar as 'healthy', one need only read a few lines of ingredients to out that lie, but it should not be necessary to plough through yards of verbiage and the Companies Act to learn that an Irredeemable security isn't.

Whether this is really matter for regulation, hmmm. Much easier to prevent Noddys from buying them.

V8

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Re: Switch from Bank Pref to Equity

#376998

Postby johnhemming » January 14th, 2021, 11:30 am

88V8 wrote:And I am sure that a significant percentage of investors and indeed quite a few market professionals, would still think that they cannot forcibly be repaid.

And whether they can (outside insolvency) varies from instrument to instrument. Hence there is a good reason for there to be certainty to distinguish between the securities which require a class vote and those that do not.

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Re: Switch from Bank Pref to Equity

#377031

Postby GoSeigen » January 14th, 2021, 12:11 pm

ElectronicFur wrote:
Yes they thought it was pertinent because they immediately in the very next sentence made it very clear for all the Fools here who still think the shares cannot be repaid


The press release did not say that actually. You are quoting from the Final Notice, not the Press Release.


So I am! Nice to be in the company of such alert readers!

GS

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Re: Switch from Bank Pref to Equity

#377038

Postby GoSeigen » January 14th, 2021, 12:15 pm

88V8 wrote:it should not be necessary to plough through yards of verbiage and the Companies Act to learn that an Irredeemable security isn't.

1. You invest in a company, you are subject to Company Law. Your own loss if you don't care about the law.
2. Yes an irredeemable UK share (not security) isn't redeemable. No one has ever disputed that. Discussion and misunderstanding has been about capital reduction, not redemption.

GS

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Re: Switch from Bank Pref to Equity

#377060

Postby Dod101 » January 14th, 2021, 12:51 pm

GoSeigen wrote:
88V8 wrote:it should not be necessary to plough through yards of verbiage and the Companies Act to learn that an Irredeemable security isn't.

1. You invest in a company, you are subject to Company Law. Your own loss if you don't care about the law.
2. Yes an irredeemable UK share (not security) isn't redeemable. No one has ever disputed that. Discussion and misunderstanding has been about capital reduction, not redemption.

GS
'

When a share is irredeemable that means it is not redeemable at the option of the issuer, but, just like any other asset, it can be redeemed (bought back) if both parties agree both the sale in principle and the price at which the transaction will take place. How could it be otherwise? It does not need the FCA to tell us that. Everything is for sale if the price is right.

Dod

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Re: Switch from Bank Pref to Equity

#377223

Postby GoSeigen » January 14th, 2021, 5:46 pm

Dod101 wrote:
GoSeigen wrote:
88V8 wrote:it should not be necessary to plough through yards of verbiage and the Companies Act to learn that an Irredeemable security isn't.

1. You invest in a company, you are subject to Company Law. Your own loss if you don't care about the law.
2. Yes an irredeemable UK share (not security) isn't redeemable. No one has ever disputed that. Discussion and misunderstanding has been about capital reduction, not redemption.

GS
'

When a share is irredeemable that means it is not redeemable at the option of the issuer, but, just like any other asset, it can be redeemed (bought back) if both parties agree both the sale in principle and the price at which the transaction will take place. How could it be otherwise? It does not need the FCA to tell us that. Everything is for sale if the price is right.

Dod

Well actually there are two other ways it can be bought back (excluding winding up):
-The first, by agreement between the parties as you stated with some particular restrictions, the most well known being that the purchase may only be from distributable funds.
-The second is the one I mentioned: capital reduction, which requires the approval of the high court and shareholders.

Neither of these are termed redemption in the context of company law. Redemption is only available to redeemable shares which are those in which the applicable redemption terms are explicitly stated at the time of issue of the shares.

This is UK company law, but as we see in this thread many people think the law should not apply if it's too long a read for them ;-)

GS
Last edited by GoSeigen on January 14th, 2021, 5:47 pm, edited 1 time in total.

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Re: Switch from Bank Pref to Equity

#377225

Postby ElectronicFur » January 14th, 2021, 5:46 pm

I don't see why some of you are so opposed to the regulator clarifying the issue, or why some of you seek to somehow blame investors for not being aware of the issue.

Especially when even the issuer was not aware until 2017. Aviva disclosed to the FCA it only discovered in 2017, after obtaining third-party legal advice, that the legal ability to cancel at par was available to it due to the Companies Act 2006. Even after discovering this and having examined the options in detail, Aviva disclosed it's board was divided, the CEO stated there was less consensus on this issue than on any other in five years.

Just because something is legally possible does not mean that it will be deemed to be fair, and legally there is legislation giving the regulator powers to act to ensure fairness and clearness.

Aviva knew the preference shares were marketed as irredeemable and even perpetual. Aviva disclosed that it considered in detail the reputational risk that might arise from cancelling at par, which I think illustrates it was aware that it's actions might be viewed as unfair. It disclosed it considered whether knowing about the ability to cancel at par was possession of inside information. It also disclosed it did detailed work on how the court might view the option, and was worried about the litigation risk, which illustrates it was uncertain from the outset how it's actions might be viewed by investors and the court.

The above is why I think the regulator needs to provide further clarity, and why I wrote to them.

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Re: Switch from Bank Pref to Equity

#377245

Postby Dod101 » January 14th, 2021, 7:24 pm

ElectronicFur wrote:I don't see why some of you are so opposed to the regulator clarifying the issue, or why some of you seek to somehow blame investors for not being aware of the issue.

Especially when even the issuer was not aware until 2017. Aviva disclosed to the FCA it only discovered in 2017, after obtaining third-party legal advice, that the legal ability to cancel at par was available to it due to the Companies Act 2006. Even after discovering this and having examined the options in detail, Aviva disclosed it's board was divided, the CEO stated there was less consensus on this issue than on any other in five years.

Just because something is legally possible does not mean that it will be deemed to be fair, and legally there is legislation giving the regulator powers to act to ensure fairness and clearness.

Aviva knew the preference shares were marketed as irredeemable and even perpetual. Aviva disclosed that it considered in detail the reputational risk that might arise from cancelling at par, which I think illustrates it was aware that it's actions might be viewed as unfair. It disclosed it considered whether knowing about the ability to cancel at par was possession of inside information. It also disclosed it did detailed work on how the court might view the option, and was worried about the litigation risk, which illustrates it was uncertain from the outset how it's actions might be viewed by investors and the court.

The above is why I think the regulator needs to provide further clarity, and why I wrote to them.


But surely what seems to have been established is that they do not/did not have the option simply to cancel at par. If GS is correct, and I would say it sounds as if he is, then cancelling them at par could only be seen as a capital reduction and would need the sanction of the Courts. Holders of these Prefs might well see that as unfair if the Courts agreed, but a lot in life is seen as unfair by different parties, depending on they stand in the matter. The honourable thing to have done would have been to set a price at which to buy them, probably somewhere above the then market price and put the proposal to a meeting of the shareholders to try to gain their approval.

Dod

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Re: Switch from Bank Pref to Equity

#377250

Postby johnhemming » January 14th, 2021, 7:44 pm

ElectronicFur wrote:The above is why I think the regulator needs to provide further clarity, and why I wrote to them.

I sent another letter to the regulator more recently saying clarity was needed. With all the uncertainty about the legal position of class votes and whether this aspect of EU law has force or not clarity is needed.

I have not posted the first response I had as it basically said nothing.

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Re: Switch from Bank Pref to Equity

#377325

Postby GoSeigen » January 15th, 2021, 6:47 am

johnhemming wrote:
ElectronicFur wrote:The above is why I think the regulator needs to provide further clarity, and why I wrote to them.

I sent another letter to the regulator more recently saying clarity was needed. With all the uncertainty about the legal position of class votes and whether this aspect of EU law has force or not clarity is needed.

I have not posted the first response I had as it basically said nothing.


It would help if you read their report first, which makes clear their position.

GS

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Re: Switch from Bank Pref to Equity

#377342

Postby johnhemming » January 15th, 2021, 8:35 am

GoSeigen wrote:
johnhemming wrote:
ElectronicFur wrote:The above is why I think the regulator needs to provide further clarity, and why I wrote to them.

I sent another letter to the regulator more recently saying clarity was needed. With all the uncertainty about the legal position of class votes and whether this aspect of EU law has force or not clarity is needed.

I have not posted the first response I had as it basically said nothing.


It would help if you read their report first, which makes clear their position.


It would be helpful if you could give a link to the report. However, I think their position should be that there should be clarity as to whether such hybrid instruments are subject to a return of capital without a class vote or not. I think they generally support clarity so this is not a big step.

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Re: Switch from Bank Pref to Equity

#377361

Postby GoSeigen » January 15th, 2021, 9:25 am

johnhemming wrote:
GoSeigen wrote:
johnhemming wrote:I sent another letter to the regulator more recently saying clarity was needed. With all the uncertainty about the legal position of class votes and whether this aspect of EU law has force or not clarity is needed.

I have not posted the first response I had as it basically said nothing.


It would help if you read their report first, which makes clear their position.


It would be helpful if you could give a link to the report. However, I think their position should be that there should be clarity as to whether such hybrid instruments are subject to a return of capital without a class vote or not. I think they generally support clarity so this is not a big step.


It's on their website:

https://www.fca.org.uk/publication/final-notices/aviva-plc-2020.pdf

The issue of a class vote is not statutory but contractual. Given there are thousands of companies (millions?) with shares I doubt it's practical or in anyone's interest for the FCA to carry out this sort of exercise. As always if you invest in shares DYOFR.

GS

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Re: Switch from Bank Pref to Equity

#377363

Postby johnhemming » January 15th, 2021, 9:30 am

GoSeigen wrote:The issue of a class vote is not statutory but contractual. Given there are thousands of companies (millions?) with shares I doubt it's practical or in anyone's interest for the FCA to carry out this sort of exercise. As always if you invest in shares DYOFR.

When I last did the research on this there was also EU law that applied which required a class vote.

I am not suggesting that the FCA do that sort of exercise. I am suggesting that if companies have hybrid instruments listed on public exchanges that they should publish a phrase which explains what their understanding of the mixture of statutory (including EU law carried forward notwithstanding Brexit) and contractual law that applies. The FCA should require this.

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Re: Switch from Bank Pref to Equity

#377366

Postby stockton » January 15th, 2021, 9:38 am

GoSeigen wrote:Para 4.3 [...] Nevertheless (due to the terms under which the shares were issued and section 641 of the Companies Act 2006) Aviva has the ability to cancel the shares at par, subject to a shareholder vote and court approval. Alternatively, any issuer wishing to cancel shares has the option of doing so on a voluntary basis by offering (tendering) to buy back such securities from the holders.

There you have it in black and white. The FCA also puts the blame squarely on the market for not understanding the above.

Now can we please leave the FCA alone on this matter?

GS

Why would one leave the FCA alone when this looks like another example of FCA incompetence.
It appears that the FCA has not had the courage to challenge whichever lawyers it consulted on the matter, with the result that the FCA is apparently telling "the market" that the technical words used by "the market" do not mean what "the market" believes them to mean.
Basically the opinion posted by the FCA is ridiculous.


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