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.
No comments:
Post a Comment