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PIBS, PSB, CCDS, and risk after Aviva

Gilts, bonds, and interest-bearing shares
paulmiller
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PIBS, PSB, CCDS, and risk after Aviva

#143353

Postby paulmiller » June 3rd, 2018, 9:48 pm

Following the Aviva problem and the discovery by a law firm that certain Preference shares may be able to be cancelled at par without the agreement of Preference shareholders, does anyone know if there is any risk with any of these other instruments being suddenly cancelled or purchased at par, assuming that they are trading well above par, and assuming that there are no call dates ?

Before the Aviva problem the market priced Aviva Preference shares as if they were Irredeemable and Perpetual and could not be cancelled or purchased at par. So is there any possibility that a law firm could try to use or exploit some legal clause or legal term with any of these other instruments in order to cancel or purchase at par without the agreement of holders ? Or is it reasonable for the market to continue to assume that these are all completely safe from any kind of cancellation or purchase at par ?

For example :

Skipton 8.5% PIBS (SBSA)
Bank of Ireland 13.375% PSB (BOI)
Nationwide 10.25% CCDS (NBS)

Is it reasonable for the market to continue to assume that these are all completely safe from any kind of cancellation or purchase at par ?

Moderator Message:
You simply cannot set out classes of acceptable or unacceptable responses as a poster. If you see behaviour on the boards that is abusive in some way or other then just report it and we Mods will deal with it. Please do not try to impose up-front a presumption of poor behavior. Equally us Mods are getting a tad fed up with people deliberately setting out to test the boundaries and provoke others. If you all do not behave civilly and courteously at all times we will simply block-delete the lot. Please do not cause us to feel we have to do this, as it would be a waste of time and I have a real world job to do as well. regards, dspp

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143378

Postby Alaric » June 4th, 2018, 12:35 am

paulmiller wrote:Bank of Ireland 13.375% PSB (BOI)


If these were the former Bristol & West PIBS, didn't the Bank of Ireland try something to renegade on the liabilities?

https://www.fixedincomeinvestments.co.u ... tailbonds/

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143479

Postby GoSeigen » June 4th, 2018, 10:38 am

paulmiller wrote:Following the Aviva problem and the discovery by a law firm that certain Preference shares may be able to be cancelled at par without the agreement of Preference shareholders, does anyone know if there is any risk with any of these other instruments being suddenly cancelled or purchased at par, assuming that they are trading well above par, and assuming that there are no call dates ?

Before the Aviva problem the market priced Aviva Preference shares as if they were Irredeemable and Perpetual and could not be cancelled or purchased at par.

The OP refers to "the market" several times. It should be noted that the market has no special powers or understanding, nor is it a clearly identifiable entity. The bit of the market that sets the price of a security is just those few individuals who happen to be trading at a particular time. One shouldn't rely on them to give any insight whatsoever -- their pricing should be taken with a huge grain of salt IOW. The danger if you give any credence to the market is that you buy when "the market" is relaxed about an asset, usually when it has least value, and sell when "the market" is most worried about the asset, when its price represents good value.

So is there any possibility that a law firm could try to use or exploit some legal clause or legal term with any of these other instruments in order to cancel or purchase at par without the agreement of holders ?


One needs to read the contracts for these instruments carefully. Relying on the opinion of people on a bulletin board is almost as dangerous as relying on the "market". Having read the terms of these instruments, what are the clauses causing concern? It's much easier to give a view on specific situations than just guessing...

I can state immediately, though, that PIBS and CCDS interest are completely at the discretion of the board. Thus they have absolutely no intrinsic value beyond the continued profitability of the respective businesses. BOI is a subordinated bond with mandatory interest payments, but as above, hard to comment on generality -- please quote any text causing worry?

Or is it reasonable for the market to continue to assume that these are all completely safe from any kind of cancellation or purchase at par ?

For example :

Skipton 8.5% PIBS (SBSA)
Bank of Ireland 13.375% PSB (BOI)
Nationwide 10.25% CCDS (NBS)

Is it reasonable for the market to continue to assume that these are all completely safe from any kind of cancellation or purchase at par ?


As I said above, I don't think the market assumes this and I don't think one should rely on it even if the market did assume it. On should always do one's own research and rely on one's own judgment.


GS

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143677

Postby paulmiller » June 4th, 2018, 6:08 pm

Alaric,

I think Bank of Ireland wanted to stop payment on them but Mark succeeded in the campaign against them.

I understand that any of these companies or banks or building societies can stop payment for reasons of profitability or financial distress but I was wondering if there was any way, as with Aviva preference shares, the price of any of these other instruments could just suddenly collapse one day because of something that almost everyone in the UK had never known about before.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143682

Postby dspp » June 4th, 2018, 6:24 pm

paulmiller,

As an outsider who has stuck to plain vanilla equity all my life, looking in on this scene, I think the answer is that the old certainties can no longer be taken for granted. This leaves a retail investor, of any sort, at a considerable disadvantage. Assuming for the moment that we all read the small print, ponder it carefully, and then take a view on the balance of risks vs rewards in each and every individual case. Unfortunately the Lloyds ECN case then shows that the lawyers can take our understanding through the courts and go "whoops, I made a drafting mistake there", and only after a ding-dong through every court in the land does one get a ruling that cannot be appealed further. That's not a game a private investor can reasonably play at.

I think this is a very immoral situation. It also makes it a very fraught area to invest in. And I don't think any of the regulators are making it any better, or indeed care particularly much.

regards, dspp

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143863

Postby OwenSwansea » June 5th, 2018, 9:44 am

dspp,

You are right to remind us of the Lloyds ECN case, which was a travesty of justice on an epic scale.

The FCA should be ashamed of their pathetic inaction in this matter, 123,000 retail investors abandoned to the tender mercy of LBG.

Owen.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143913

Postby GoSeigen » June 5th, 2018, 1:24 pm

dspp wrote:I think this is a very immoral situation. It also makes it a very fraught area to invest in. And I don't think any of the regulators are making it any better, or indeed care particularly much.


OwenSwansea wrote:travesty of justice on an epic scale


-The ECN noteholders' case was pursued through to the Supreme Court and lost at both the Appeal Court and the Supreme Court. Where exactly is it alleged that the "immorality" and "injustice" lie?

-What lesson(s) should have been learned by investors from the ECN case?

-It was argued (vehemently) that if "mistake" was confirmed by the supreme court it would be an open and shut case of fraud against Lloyds Banking Group. Where are the investor cases suing Lloyds for their obvious misrepresentation of the contract?


GS

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143916

Postby dspp » June 5th, 2018, 1:49 pm

GS,

My view is that it is an immoral situation we are in, and I am as entitled to my opinion on that as any of us. I don't think I have said anything about injustice, though I do wonder about it.

The lessons I have personally learnt from the Lloyds ECN case are:

1. Phew, thankfully I didn't hold any.
2. Yikes, if the senior management team are as amoral as that I'd better switch banks, away from Lloyds (now done, after two years of preparation, including explaining in person to my bank manager why - he really didn't give a $%$%^& though, which rather confirmed my view).
3. No way can a small beer private investor like me ever be sufficiently confident that I have read and understood the Ts & Cs of these things to invest with confidence; especially when I bear in mind the consequences of the issuer declaring a "drafting error"; and the financial implications of taking it to law when they can sue me for costs - all in all it is a playing field heavily tilted against the small guy.
4. That GS chap is a smart cookie as he figured it all out in the ECN and comparable situations (I'm not jesting, I am impressed).
5. The regulators don't care.
6. The politicians don't care.
7. The media don't care.
8. So I had better take care.

regards, dspp

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Re: PIBS, PSB, CCDS, and risk after Aviva

#143990

Postby ChrisNix » June 5th, 2018, 9:29 pm

dspp wrote:GS,

My view is that it is an immoral situation we are in, and I am as entitled to my opinion on that as any of us. I don't think I have said anything about injustice, though I do wonder about it.

The lessons I have personally learnt from the Lloyds ECN case are:

1. Phew, thankfully I didn't hold any.
2. Yikes, if the senior management team are as amoral as that I'd better switch banks, away from Lloyds (now done, after two years of preparation, including explaining in person to my bank manager why - he really didn't give a $%$%^& though, which rather confirmed my view).
3. No way can a small beer private investor like me ever be sufficiently confident that I have read and understood the Ts & Cs of these things to invest with confidence; especially when I bear in mind the consequences of the issuer declaring a "drafting error"; and the financial implications of taking it to law when they can sue me for costs - all in all it is a playing field heavily tilted against the small guy.
4. That GS chap is a smart cookie as he figured it all out in the ECN and comparable situations (I'm not jesting, I am impressed).
5. The regulators don't care.
6. The politicians don't care.
7. The media don't care.
8. So I had better take care.

regards, dspp


dspp,

An equities man, myself, but have had some experience of bond court actions. I presume Lloyds successfully submitted that the contemporaneous evidence was sufficiently strong for the court to rectify the deficient dox?

If so, the directors have a duty to the company to correct the mistake. Not sure morality comes into it.

As an aside, I know of an Australian case where the lawyers incorrectly cut and pasted the words from a previous issue!!! A beady investor spotted and insisted on the stated conversion terms. The company's arguments for a rectification were going poorly, so it settled. Loser was solicitors' PI.

Chris

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144152

Postby ElectronicFur » June 6th, 2018, 3:24 pm

The Lloyds ECN case was highly immoral in my opinion, for two reasons.

Firstly, the regulators refused to disclose to the Supreme Court what they and Lloyds knew about upcoming changes to capital requirements at the time of the original issue of these ECN. It seems they knew about the changes, knew it was certain that a capital disqualification event would occur, but failed to put that in the prospectus. That is immoral behaviour by both Lloyds and the regulator.

The 5 Supreme Court judges supported the decision by a majority of only three to two. Had they been aware of what the regulator and Lloyds knew at the time of issue, then I think it would have made a difference.

Secondly, it's a statutory requirement that a prospectus is accurate and informs investors of all the information they need to make a decision. The court ignored this, and the regulator, who should protect investors, did not care and seems to have been complicit.

I was unaffected by the ECN case, as I decided to sell my holdings before the ECN conversion, as I was uncertain of the consequences. A lucky escape. But I am certain the behaviour of Lloyds and the regulator in this case was immoral.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144169

Postby OwenSwansea » June 6th, 2018, 4:14 pm

The Lloyds ECN case, and now the Aviva affair make the UK Stock Market a highly dubious place to invest money.

The days of "my word is my bond" are now but a distant memory of a foreign land.

Very sad.

Owen.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144173

Postby ChrisNix » June 6th, 2018, 4:50 pm

ElectronicFur wrote:The Lloyds ECN case was highly immoral in my opinion, for two reasons.

Firstly, the regulators refused to disclose to the Supreme Court what they and Lloyds knew about upcoming changes to capital requirements at the time of the original issue of these ECN. It seems they knew about the changes, knew it was certain that a capital disqualification event would occur, but failed to put that in the prospectus. That is immoral behaviour by both Lloyds and the regulator.

The 5 Supreme Court judges supported the decision by a majority of only three to two. Had they been aware of what the regulator and Lloyds knew at the time of issue, then I think it would have made a difference.

Secondly, it's a statutory requirement that a prospectus is accurate and informs investors of all the information they need to make a decision. The court ignored this, and the regulator, who should protect investors, did not care and seems to have been complicit.

I was unaffected by the ECN case, as I decided to sell my holdings before the ECN conversion, as I was uncertain of the consequences. A lucky escape. But I am certain the behaviour of Lloyds and the regulator in this case was immoral.


EF,

Can't comment in detail, but the evidential threshold for rectification is extremely high.

Even if the terms were wrongly drafted, if the offering documents contained summaries of the terms original investors relied on to subscribe it seems to me likely they have a case against the parties (issuer/banker/lawyers) who prepared the document to be compensated for any losses suffered. That doesn't alter any right Lloyds had to do what they did and, if the case for rectification was well made then the court was quite right to ignore the prospectus.

That said, if that were the case it does seem very odd that no one appears to have lodged a class action, which I'd have expected the regulator to support. You've suggested owners at the time of the conversion lost out, but do you think the original subscribers also did?

Chris

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144198

Postby OwenSwansea » June 6th, 2018, 7:20 pm

Chris,

Of course the original investors in the Lloyds ECNs lost out. They were promised an interest rate of 11.25% until the year 2023, in return for giving up a perpetual interest rate [in my case] of 8.75%.

Owen.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144207

Postby ChrisNix » June 6th, 2018, 7:53 pm

OwenSwansea wrote:Chris,

Of course the original investors in the Lloyds ECNs lost out. They were promised an interest rate of 11.25% until the year 2023, in return for giving up a perpetual interest rate [in my case] of 8.75%.

Owen.


Owen,

The ECNs would only pay that rate whilst they counted as regulatory capital (in practice in addition to in theory). That's why it was so high.

The relevant calculation is value of Lloyds shares received on date of exchange, less income received during holding less the market value at date of exchange of previous investment. No idea if profit or loss.

It may seem harsh but future income projections/expectations (opportunity cost) don't come into compensation.

Chris

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144639

Postby BobGe » June 9th, 2018, 1:52 am

ChrisNix wrote:...if the case for rectification was well made then the court was quite right to ignore the prospectus. Chris

I think you would need to spend a while to understand the ECNs case issues, arguments and outcome. AFAIAA there was no rectification.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144640

Postby BobGe » June 9th, 2018, 1:59 am

GoSeigen wrote:-It was argued (vehemently) that if "mistake" was confirmed by the supreme court it would be an open and shut case of fraud against Lloyds Banking Group. Where are the investor cases suing Lloyds for their obvious misrepresentation of the contract? GS

Was 'mistake' confirmed? And if it were, who could afford it?

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Re: PIBS, PSB, CCDS, and risk after Aviva

#144718

Postby OwenSwansea » June 9th, 2018, 3:13 pm

I think that the FCA should be forced to reassess its decision in response to complaints made by the Lloyds ECN bondholders.

The FCA have presided over a monumental miscarriage of justice in this matter. The decision they came to was unbelievable.

Parliament should act.

Owen.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#145723

Postby BobGe » June 15th, 2018, 3:03 am

OwenSwansea wrote:The decision they came to was unbelievable.

Or rather it was all too believable and in that lies the root of the problem.

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Re: PIBS, PSB, CCDS, and risk after Aviva

#146551

Postby GoSeigen » June 18th, 2018, 9:50 pm

BobGe wrote:
GoSeigen wrote:-It was argued (vehemently) that if "mistake" was confirmed by the supreme court it would be an open and shut case of fraud against Lloyds Banking Group. Where are the investor cases suing Lloyds for their obvious misrepresentation of the contract? GS

Was 'mistake' confirmed? And if it were, who could afford it?



The mistake was confirmed, and the court offered a modified/corrected version of the text IIRC.

I don't think affording action was the issue. The fact is certain people swore that they would sue Lloyds if it was found that there was a mistake in the wording of the terms and then verbally abused others (yours truly) for suggesting that investors might have to accept the verdict and that talk of suing might be no more than bravado.


GS

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Re: PIBS, PSB, CCDS, and risk after Aviva

#146811

Postby BobGe » June 20th, 2018, 3:06 am

GoSeigen wrote:The mistake was confirmed, and the court offered a modified/corrected version of the text IIRC. GS

Not by the SC, and I don't think there was any rectification, IIRC.


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