The Lemon Fool

Even if the yield on 30 Year Gilts reached 3%, I still think that perpetual Prefs. yielding 6% would be worth considering.
Currently, the people buying 30 Year Gilts can only be the very rich, whose only concern is the preservation of capital in a world of ongoing low inflation.

Owen.

So you have a £100k in your SIPP..sdo you want to buy an annuity from AVIVA and receive £3,781 per annum and lose the £100k at the end....or buy £100k of Aviva 8.375% Irredeemable preference shares and receive £5,585 per annum and get to pass the £100k on to your dependents...

Compared to where preference shares traded realtive to similar duration Gilts in 2001~2007 they are a very good value...

So are prefence shares a safer form of bank capital in 2019 than they were in 2006...?

Aviva's actions in 2018 have put (in my opinion) a 150bp risk premia on to preference shares which will take many years to correct.....

rippleog wrote:So are preference shares a safer form of bank capital in 2019 than they were in 2006...?

What's ticking away underneath them is that they cease to be countable as part of solvency capital from about 2026 onwards. Notwithstanding Aviva's attempt to find a way of repaying at no more than par having been thwarted, financial issuers may still wish to repay and reissue the capital under different terms.

That's insurer capital as well as bank capital.

Could someone please explain to me why capital raised in the form of Preference Shares will not be countable as solvency capital after 2026.
Also, will Brexit possibly alter this situation.

Owen.

It is interesting to note that no one can think of any logical reason why capital raised in the form of Preference Shares will not be countable as solvency capital after 2026.

Owen.

OwenSwansea wrote:It is interesting to note that no one can think of any logical reason why capital raised in the form of Preference Shares will not be countable as solvency capital after 2026.

Owen.

It is interesting to note you cannot be bothered to DYOR.

GS

Just as I thought, there is no valid reason why Irredeemable Preference Shares should not be regarded as countable Capital after 2026.

Owen.

OwenSwansea wrote: there is no valid reason why Irredeemable Preference Shares should not be regarded as countable Capital after 2026.

I believe there's an EU Directive that says so. If it was partly written by the UK's FCA, it is likely to continue to apply, whether a "valid reason" or otherwise.

There is plenty of time between now and 2026 for FCA to reconsiders it’s views on Irredeemable Preference Shares, especially as we are leaving the EU.

Owen.