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Banks suspend Dividends

Padders72
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Re: Banks suspend Dividends

#297241

Postby Padders72 » April 3rd, 2020, 9:28 am

spasmodicus wrote:God, I’m tired of hearing how LLOY is a good bet because of this that and the other. Before the recent crash, the ord share price had been declining more or less linearly over about 5 years from 77p ish to 50p, despite restoration of pretty meagre divi and, or maybe because of, frequent articles on e.g. TMF about how it is a good long term investment blah blah. I unloaded all my LLPC last year, not through any prescience, but because I needed the money. Unfortunately I didn’t unload all the ords as well. I’m a bit tempted to buy back into LLPC as they were a nice little earner in the period 2013-2019 that I held them. But they always paid dividends, when the ords didn’t. What’s the point of them now?

S


At 28p I would say the ords are worth a look. Unless you feel there is an existential risk looming, they may look awfully cheap in 12-18 months.

88V8
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Re: Banks suspend Dividends

#297281

Postby 88V8 » April 3rd, 2020, 10:40 am

spasmodicus wrote:...a bit tempted to buy back into LLPC as they were a nice little earner in the period 2013-2019 that I held them. But they always paid dividends, when the ords didn’t. What’s the point of them now?


The point is that along with other Prefs, they will still pay dividends.... until I see hard evidence to the contrary.
All the suspensions so far are ords.

V8

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Re: Banks suspend Dividends

#297321

Postby accountank » April 3rd, 2020, 11:51 am

88V8 wrote:
spasmodicus wrote:...a bit tempted to buy back into LLPC as they were a nice little earner in the period 2013-2019 that I held them. But they always paid dividends, when the ords didn’t. What’s the point of them now?


The point is that along with other Prefs, they will still pay dividends.... until I see hard evidence to the contrary.
All the suspensions so far are ords.

I do still have some hopefully misplaced nervousness from the language in Lloyds's announcement:

"the board has decided that until the end of 2020 we will undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares."
ie it is possible to read it that they will not be doing any:

1) quarterly or interim dividend payments
2) accrual of dividends
3) share buybacks on ordinary shares (they never did share buybacks on the prefs anyway)

OR
[
1) quarterly or interim dividend payments
2) accrual of dividends
3) share buybacks
]
on ordinary shares

The prefs fell on the announcement day although went back up a little since. I am assuming they need to pay the div this year if they want to do a final 2020 div on the ords albeit declared in 2021, but I don't know if that's actually the case that they couldn't stop one or both of the semiannual prefs payments this year if there was literally no dividend payment during calendar 2020.

I added a few LLPC just now at 112p on the hope that 4.125p will be getting paid back as a div at the end of next month. Yesterday afternoon the quote was returning 115.99p but today 112p is available for up to 10k shares despite the bid saying 116p. The published spread is always huge and it seems to be luck of the draw how far inside it you get, but I am interested again at these prices. I suppose the ordinaries do offer much more capital upside and both classes of shares are dead in a bail-in, so may not be very rational to go for the prefs - but I would like to give it several more months (or see the price a fair bit lower) before getting suckered into thinking that the ords were compelling.

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Re: Banks suspend Dividends

#297384

Postby hiriskpaul » April 3rd, 2020, 2:01 pm

accountank wrote:
88V8 wrote:
spasmodicus wrote:...a bit tempted to buy back into LLPC as they were a nice little earner in the period 2013-2019 that I held them. But they always paid dividends, when the ords didn’t. What’s the point of them now?


The point is that along with other Prefs, they will still pay dividends.... until I see hard evidence to the contrary.
All the suspensions so far are ords.

I do still have some hopefully misplaced nervousness from the language in Lloyds's announcement:

"the board has decided that until the end of 2020 we will undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares."
ie it is possible to read it that they will not be doing any:

1) quarterly or interim dividend payments
2) accrual of dividends
3) share buybacks on ordinary shares (they never did share buybacks on the prefs anyway)

OR
[
1) quarterly or interim dividend payments
2) accrual of dividends
3) share buybacks
]
on ordinary shares

The prefs fell on the announcement day although went back up a little since. I am assuming they need to pay the div this year if they want to do a final 2020 div on the ords albeit declared in 2021, but I don't know if that's actually the case that they couldn't stop one or both of the semiannual prefs payments this year if there was literally no dividend payment during calendar 2020.

I added a few LLPC just now at 112p on the hope that 4.125p will be getting paid back as a div at the end of next month. Yesterday afternoon the quote was returning 115.99p but today 112p is available for up to 10k shares despite the bid saying 116p. The published spread is always huge and it seems to be luck of the draw how far inside it you get, but I am interested again at these prices. I suppose the ordinaries do offer much more capital upside and both classes of shares are dead in a bail-in, so may not be very rational to go for the prefs - but I would like to give it several more months (or see the price a fair bit lower) before getting suckered into thinking that the ords were compelling.

I decided to dip my toes back into UK banking prefs. First time I have bought in ages, although I still hold significant positions. I am making a working assumption that dividends will not be stopped. LLPC/LLPD are probably most at risk of this happening though as the terms allow for it with no requirement to issue extra prefs, as is the case with NWBD, SAN/SANB, STAC/STAB. The market seem to think LLPC/LLPD are riskier as well as these are the best yielders. I think dividends on LLPC/LLPD (and other prefs) are probably safe. It would not send a good signal to the market for the PRA to order stopping of discretionary payments on prefs or other capital debt instruments.

SAN is the next best yielder, but I have chosen not to go for them due to the high price and the risk of them doing an Aviva at some point. I did consider STAB, for just under par, but in the end went for more NWBD (already my biggest bank pref holding) which had a similar running yield to STAB at the purchase price of 122.6808. I like the way that NWBD forms part of the capital of NatWest Bank, rather than being part of RBS top level capital and I like the clause in the articles that make an Aviva style capital reduction event less likely.

My purchases during the current crisis have been far from optimally timed. If they do get cheaper though, I would likely buy again and I am still considering STAB. The perpetual PIBS have all now dropped in price as well, but the tax treatment on these is not so favourable as income is treated as interest instead of dividends, so best held in tax shelters. I have little capacity for that until next week.


ps the LLPC payment due at the end of May is 4.625p, not 4.125p.

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Re: Banks suspend Dividends

#297393

Postby hiriskpaul » April 3rd, 2020, 2:24 pm

Incidentally, when bank stress tests are carried out, there is a built in assumption that banks will not be making discretionary dividend payments! To say that banks are not heading into a stressful period, as some of the comments I have seen in the media suggest, is quite delusional.

Another point worth making is that banks are getting a lot of indirect help from the government right now. Bailing out bank borrowers will reduce the number of bank loans that will turn bad. If banks are seen not to be doing their bit, or worse still profiteering, I would not be surprised to see another bank windfall tax coming once the crisis is over.

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Re: Banks suspend Dividends

#297400

Postby Lootman » April 3rd, 2020, 2:51 pm

hiriskpaul wrote:
flyer61 wrote:Dod 101.....it is much worst than even you think and I know you think it is bad! I expect the Government to purloin the money from the banks in due course. They know where it is and will take it under any pretext you care to imagine. Everything about our society is being squeezed by the state I feel it is going to end badly.

Terry Smith said banks were uninvestable and he is right. I won't be buying another UK bank share. You may as well call them HMB Lloyds, HMB Barclays, HMB Standard Chartered.....

I think you may be getting a little too carried away with the gloom here! The banks are likely to be in enough trouble as it is. Current measures are being put in place to try to avoid their difficulties becoming calamitous and I welcome them. Even so, my preference would still be to avoid the ords and pick up their prefs and debt ;)

I have to say I agree with flyer61. I never reinvested in banks after the financial crisis because I felt I could never trust them again. In fact I didn't invest in any financials, so that means no insurance companies or brokers either.

The one bank I have held throughout is JPMorgam which is widely thought to have the best balance sheet of any Western bank. Even so it is down some 40% although the dividend is safe. I also hold Berkshire Hathaway which is classified as a financial share but is clearly more of a conglomerate (and the only conglomerate I hold as well as I otherwise dislike them as well).

Other UK sectors I don't trust are retailers, support services and utilities. But banks are the worst.

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Re: Banks suspend Dividends

#297425

Postby 88V8 » April 3rd, 2020, 3:27 pm

accountank wrote:..."the board has decided that until the end of 2020 we will undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares."
ie it is possible to read it that they will not be doing any:

1) quarterly or interim dividend payments
2) accrual of dividends
3) share buybacks on ordinary shares (they never did share buybacks on the prefs anyway)


Ahh, punctuation.
Yes, it could be read that way, if one did not trust the writer.
But I hope it was 'just a drafting infelicity m'lud.'

Next ex-date for the Prefs some time in August. Different world, August.

V8

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Re: Banks suspend Dividends

#297428

Postby 88V8 » April 3rd, 2020, 3:32 pm

Lootman wrote:I never reinvested in banks after the financial crisis .......I didn't invest in any financials, so that means no insurance companies or brokers either. .......a conglomerate as I dislike them as well. Other UK sectors I don't trust are retailers, support services and utilities.


You are pretty catholic in your dislikes :) So, as a sidenote, what do you like?

V8

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Re: Banks suspend Dividends

#297429

Postby Padders72 » April 3rd, 2020, 3:35 pm

88V8 wrote:
accountank wrote:..."the board has decided that until the end of 2020 we will undertake no quarterly or interim dividend payments, accrual of dividends, or share buybacks on ordinary shares."
ie it is possible to read it that they will not be doing any:

1) quarterly or interim dividend payments
2) accrual of dividends
3) share buybacks on ordinary shares (they never did share buybacks on the prefs anyway)


Ahh, punctuation.
Yes, it could be read that way, if one did not trust the writer.
But I hope it was 'just a drafting infelicity m'lud.'

Next ex-date for the Prefs some time in August. Different world, August.

V8


If you are talking Lloyds prefs, and I thought we were, the next LLPC/D ex-div date is 30th April, one after that around 31st Oct.

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Re: Banks suspend Dividends

#297453

Postby 88V8 » April 3rd, 2020, 4:22 pm

Yes, you're right, thanks. I should have been wearing my specs.

V8

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Re: Banks suspend Dividends

#297470

Postby accountank » April 3rd, 2020, 5:03 pm

88V8 wrote:Yes, you're right, thanks. I should have been wearing my specs.

And me too with the 4.125p instead of 4.625p for LLPC. With the first semiannual only two months from getting paid, the yield is marginally better than the 8.5% implied by a straight 9.75p over today's 112p buy price. My comment was just my paranoia looking at the announcement language after a week of reading weasle-words from lawyers, and not knowing how far I can trust the Lloyds board really :)

I do have NWBD also, but no other banking sector prefs - just BP.A, RAVP and RE.B (in order of less to more precariousness!)

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Re: Banks suspend Dividends

#297494

Postby hiriskpaul » April 3rd, 2020, 6:13 pm

accountank wrote:
88V8 wrote:Yes, you're right, thanks. I should have been wearing my specs.

And me too with the 4.125p instead of 4.625p for LLPC. With the first semiannual only two months from getting paid, the yield is marginally better than the 8.5% implied by a straight 9.75p over today's 112p buy price. My comment was just my paranoia looking at the announcement language after a week of reading weasle-words from lawyers, and not knowing how far I can trust the Lloyds board really :)

I do have NWBD also, but no other banking sector prefs - just BP.A, RAVP and RE.B (in order of less to more precariousness!)

Lloyds are required to give 10 business days notice prior to payment date if the LLPC dividend is not going to be paid. But I also noticed this paragraph this morning in the LLPC prospectus:

As soon as practicable after resolving that no Preference Dividend shall be declared and paid or
that it shall be declared and paid only in part, the Board of Directors or the Committee shall give
notice thereof to the holders of the Preference Shares.


In other words, if Lloyds know now that they will not be paying, they should have already announced it. I think this gives some weight to the argument that the dividend suspension only applies to ordinary shares. I am sure Lloyds and other banks will have clarified exactly which securities the PRA "request" not to pay dividends applies to. That is not to say that Lloyds may choose not to pay LLPC dividends, only that the PRA request/directive does not apply to prefs.

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Re: Banks suspend Dividends

#297496

Postby Lootman » April 3rd, 2020, 6:18 pm

88V8 wrote:
Lootman wrote:I never reinvested in banks after the financial crisis .......I didn't invest in any financials, so that means no insurance companies or brokers either. .......a conglomerate as I dislike them as well. Other UK sectors I don't trust are retailers, support services and utilities.

You are pretty catholic in your dislikes :) So, as a sidenote, what do you like?

Yeah, 2017-2019 instilled some significant biases in me.

For the last decade I have been over-weight Tech, Healthcare, Consumer Staples, Industrials, Gold and Energy. Obviously that last one hasn't worked out, but the others have been OK. Mostly US names.

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Re: Banks suspend Dividends

#297513

Postby hiriskpaul » April 3rd, 2020, 6:54 pm

Lootman wrote:
hiriskpaul wrote:
flyer61 wrote:Dod 101.....it is much worst than even you think and I know you think it is bad! I expect the Government to purloin the money from the banks in due course. They know where it is and will take it under any pretext you care to imagine. Everything about our society is being squeezed by the state I feel it is going to end badly.

Terry Smith said banks were uninvestable and he is right. I won't be buying another UK bank share. You may as well call them HMB Lloyds, HMB Barclays, HMB Standard Chartered.....

I think you may be getting a little too carried away with the gloom here! The banks are likely to be in enough trouble as it is. Current measures are being put in place to try to avoid their difficulties becoming calamitous and I welcome them. Even so, my preference would still be to avoid the ords and pick up their prefs and debt ;)

I have to say I agree with flyer61. I never reinvested in banks after the financial crisis because I felt I could never trust them again. In fact I didn't invest in any financials, so that means no insurance companies or brokers either.

The one bank I have held throughout is JPMorgam which is widely thought to have the best balance sheet of any Western bank. Even so it is down some 40% although the dividend is safe. I also hold Berkshire Hathaway which is classified as a financial share but is clearly more of a conglomerate (and the only conglomerate I hold as well as I otherwise dislike them as well).

Other UK sectors I don't trust are retailers, support services and utilities. But banks are the worst.

Yes, on the whole banks have done a massive disservice to their shareholders for many years. They have been incompetently run, failed to properly mange risk (to be fair to many who worked in risk management, they often ignored/overruled what their risk managers were saying), frequently attempted to rip off their customers and have allowed employees to engage in outright fraud and other illegal activities. It is no wonder you, their customers and governments don't trust them and is the reason that banks are so heavily regulated now. I fear competence of directors has not increased greatly either and find it astonishing that many banks were actually contemplating paying dividends ahead of a period in which they have no reliable way of estimating their future losses. Hats off to Provident Financial directors who pulled the plug on dividends without being asked to by the PRA.

Anyone investing in banks has to understand that these are in no way freewheeling capitalist enterprises, able to do what they want within the law. However, that does not necessarily mean that banks cannot be good investments. Returns on ordinary shares has been lousy, but returns on prefs, subordinated debt and even senior unsecured has been good (there have been exceptions!). That even applies to those who bought before the banking crisis. NWBD for example might have fallen to around 20p, but it carried on paying its 9% dividend throughout. Anyone who held before the collapse and carried on reinvesting dividends will have done well.

Bank ordinary shares may turn out to be exceptional buys right now, but it isn't really possible to say with any certainty. The banks themselves don't have much of a clue what their losses will be, let alone analysts and investors. So for me the ordinary shares would just be a punt. Prefs and subordinated debt on the other hand should IMHO do well at current prices. Banks (thanks to regulators) are going into this with a decent amount of capital. Even if losses turn out to be truly awful, I think it unlikely that banks would not be able to recapitalise themselves through rights issues. Prefs and subordinated debt are only really at risk if the banks are unable to raise capital privately and I am sure they will do their utmost to avoid direct government bailouts.

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Re: Banks suspend Dividends

#297665

Postby feste » April 4th, 2020, 11:48 am

Hi hiriskpaul,

I did well out of RBS and BoI prefs post GFC, but am leery re your " Prefs and subordinated debt are only really at risk if the banks are unable to raise capital privately and I am sure they will do their utmost to avoid direct government bailouts...."

Isn't there a risk of debt instruments being 'bailed in' under the new-ish bank living will arrangements ? It's not a sector I've followed closely , on the basis that if things were that bad, I'd have plenty of other things to worry about.....

Oops ;-< !

ATB

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Re: Banks suspend Dividends

#297691

Postby Tara » April 4th, 2020, 12:56 pm

hiriskpaul,

I also do not see how you can be so sure of the safety of bank preference shares if we go through a depression with massive loan defaults for the banks which wipe out their equity.

Take for example RBS. How do you see the future for RBS if there is a depression and they have massive defaults in the next few years, and the ordinary shares keep falling towards zero as they did a few years ago?

What do you think will happen then? Do you see no risk of RBS being nationalised, or at the very least a bail-in for NWBD preference shareholders?

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Re: Banks suspend Dividends

#297737

Postby 88V8 » April 4th, 2020, 2:57 pm

Risk.. conversation currently in progress here https://lemonfool.co.uk/viewtopic.php?f ... 3&start=20

Buy when others are fearful.. if I weren't so overweight Financials I would have been buying more, and may do anyway. So many 'bargains' at present, one hardly knows where to turn.

Is there a pusher in SAN? If I knew that I had forgotten, but do agree they might try an Aviva, and I think would be less amenable to pressure. Well, for the nervous there's always Ecclesiastical.

V8

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Re: Banks suspend Dividends

#297739

Postby GoSeigen » April 4th, 2020, 3:02 pm

Tara wrote:Take for example RBS. How do you see the future for RBS if there is a depression and they have massive defaults in the next few years, and the ordinary shares keep falling towards zero as they did a few years ago?


Please could you quantify this with figures from RBS balance sheet.

If you think there will be a depression with massive defaults then why would anyone be interested in shares at this stage? Surely they'd wait for the depression to unfold and then look around the wreckage for promising investments. Shares will fall much further than they have so far if a depression is in the offing. hiriskpaul didn't address a depression scenario.

GS

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Re: Banks suspend Dividends

#297769

Postby ursaminortaur » April 4th, 2020, 3:48 pm

GoSeigen wrote:
Tara wrote:Take for example RBS. How do you see the future for RBS if there is a depression and they have massive defaults in the next few years, and the ordinary shares keep falling towards zero as they did a few years ago?


Please could you quantify this with figures from RBS balance sheet.

If you think there will be a depression with massive defaults then why would anyone be interested in shares at this stage? Surely they'd wait for the depression to unfold and then look around the wreckage for promising investments. Shares will fall much further than they have so far if a depression is in the offing. hiriskpaul didn't address a depression scenario.

GS


If there were to be a major problem for the banks the canary would be the forcible conversion of the AT1 capital / coco bonds.

https://www.euromoney.com/article/b12kqjlwvsz26k/at1-capitalcoco-bonds-what-you-should-know

This should just affect institutional investors as the FCA banned retail investors from purchasing cocos in 2014

https://www.fca.org.uk/publication/tpi/restrictions-in-relation-to-the-retail-distribution-of-cocos.pdf

https://www.ftadviser.com/2015/06/12/investments/fixed-income/fca-confirms-retail-distribution-ban-on-coco-bonds-AGzo0OTRGQhJpiOUKZ5t7L/article.html

The FCA has formalised its ban on the sale of contingent convertible (CoCo) bonds to retail investors, in spite of opposition to the restriction.

In a policy statement released today, the regulator said following a consultation with the industry it had decided to make permanent the temporary ban it had put in place in October 2014.

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Re: Banks suspend Dividends

#297775

Postby Tara » April 4th, 2020, 4:10 pm

GoSeigen wrote:
Tara wrote:Take for example RBS. How do you see the future for RBS if there is a depression and they have massive defaults in the next few years, and the ordinary shares keep falling towards zero as they did a few years ago?


Please could you quantify this with figures from RBS balance sheet.

If you think there will be a depression with massive defaults then why would anyone be interested in shares at this stage? Surely they'd wait for the depression to unfold and then look around the wreckage for promising investments. Shares will fall much further than they have so far if a depression is in the offing. hiriskpaul didn't address a depression scenario.

GS


Many economic forecasters are already forecasting a depression and US unemployment rates of well over 30%. This is a higher unemployment rate than in the Great Depression.

Many economic forecasters are also forecasting the same for the UK. Do you think that such forecasts are very unlikely or even a small possibility?

So in such a situation of depression, what do you think that NWBD would be worth ? Do you think that NWBD will still be paying dividends or have any value left ?

https://www.cnbc.com/2020/03/30/coronav ... -says.html

https://www.theguardian.com/world/2020/ ... ords-began


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