PIBS safe so far......

Anybody considering investing in a PIBS or PSB first acts how safe is my investment. Will I continue to receive my coupon / interest payments and should the bond be redeemed will I receive my capital back.

Well so far no bank or building society has failed to pay their coupon and no PIBS have been defaulted on. But we are living in extraordinary times and with the government owning several of the minor former building societies then the future is uncertain. The conflicting consideration for income investors are:

1. This government have shown them to be less than consistent or principled when dealing with financial markets and are quite prepared or able to act incoherently often without realising. This makes the chances of default a real concern.
2. The sums involved are microscopic compared to the scale of government investment in the banking sector. Is it worth the government confronting controversy of defaulting on a loan for say £20million in the case of Northern Rock PIBS. Logic would say no but as it has been said before.

We are living through extraordinary times.

PIBS in nationalised or part nationalised banks

One of my questions since discouvering PIBS is what is going on with the PIBS or Perpectual Subordinated Bonds PSB as the pibs are banks and former building societies are technically known as.

I recently came across the website of the UK Shareholders Association which explains very clearly what is happening in respect of the PSBs relating to the different banking organisations affected by the current crisis.

1. HBOS & LLOYDS bondholders are currently safe and will be part of Lloyds financing
2. NORTHERN ROCK has been nationalised and refinanced. It is reducing its mortgage book prior to a probable eventual sale. PIBS are continue to receive interest. If the Government fail to find a buyer the bank would be wound up and importantly PIBS holders would receive payment before the Governments loan is repaid.
3. BRADFORD & BINGLEY continues to pay the interest on their former PIBS. However subordinated debt such as the PIBS ranks behind the governments debt.There is therefore a possibility of there being no capital left in the bank following the Government’s and FSCS’s charges for the interest and capital repayments which would arise over many years of funding B&B. This would mean that bondholders would be wiped out as would the shareholders of B&B. Only if there is any capital available to repay bondholders would the subordinated bondholders be repaid their capital at the par, face value, of the bonds.Under the terms of the current Treasury order there may be little hope of the money being made available to make interest payments long term and this is reflected in the current price of the bonds.

I'm therefore going to give Bradford and Bingley a wide birth even if the current yield at over 40% looks very tempting.

Best source of pibs info

I've just found a great new source for PIBS information. The site is called fixed income investor and it gives up to date data on PIBS prices, graphs and yield analysis. There is also some editorial comment on some of the PIBS. This recent article on the Nationwide 7.25% PIBS is very complementary but this PIBS only yields 7.5%. Personally, I'm looking for nearer double digits. Thats why I plumped for my first holding in the West Bromich BS 6.15% at 60p it just about does a double digit yield.

I'm just hoping that the managers having being investing in too many toxic assets over their in the Black Country such as loaning money to the struggling local footy team West Bromich Albion.

Where to get up to date PIBS prices?

Where can I get up to date PIBS prices?

There are several sources I find useful. Online you can go to a PIBS price chart in thisismoney the online part of the Daily Mail. Alternatively you can go to Collins Stewarts website and download their up to date table on PIBS PRICES

For those more traditional income seeking investors who like to stay non digital try the FT WEEKENDS Money sections DATABANK. PIBS prices here are updated weekly.

All these prices are only updated weekly so for a real time update you will have to phone your broker.

PIBS - first purchase

I finally took the plunge last week. I bought 2500 PIBS in Britannia 5.5555% PIBS (call 14/12/2015)at 60p which should give me a gross yield of around 9%. Not bad I thought. A bit of drama arose when I received a call from my stockbroker TDWATERHOUSE a few minutes after my purchase informing me that purchases could only be made in 1000 unit lots. I plumped for 3000 given that a 9% yield was just tooo juicy to resist.

Why Britannia? Well having just agreed a merger with the COOP I figure they were a pretty safe bet not to go bust.

I will be looking at topping up my holding in PIBS over the coming weeks and will keep you updated with my next purchase.