Nationwide 10.25% CCDS

[Tara]

Does anyone have these Nationwide NBS? The dealing spread seems very high. What level of risk do you think NBS has compared to say NWBD or the Aviva Prefs? Is the risk higher, lower, similar?

Also, the distribution on these NBS has been £10.25 since they started. There is a Distribution cap which is increased every year according to the CPI and it was £17.91 in April of this year. Is this cap ever likely to be used by Nationwide? Is there any possibility that Nationwide may increase the £10.25 payout?

Nationwide seem to make good profits but the distribution never increases or decreases. Is there any purpose to this cap if it never seems to be used?

[Tara]

Are these Nationwide NBS considered to be a higher risk than, for example, NWBD or the Aviva Pref shares? The yield is higher on NBS and so I assume that they are considered to be a higher risk.

Also, does anyone understand the purpose of the £17.91 Distribution cap on NBS? What is the actual purpose of the cap if the distribution is always £10.25?

[rippleog]

I hold these.

They are core capital unlike prefs...so riskier from capital perspective...
but arguably Nationwide is the one best UK credits ...

[Tara]

I hold these.

They are core capital unlike prefs...so riskier from capital perspective...
but arguably Nationwide is the one best UK credits ...

My original post was also about the Distribution cap. Is there any purpose to this cap? It never seems to be used.

The Distribution cap is increased every year according to the CPI and it was £17.91 in April of this year. Is this cap ever likely to be used by Nationwide? Is there any possibility that Nationwide may increase the £10.25 payout?

Nationwide seem to make good profits but the distribution never increases or decreases. It is always £10.25. What is the purpose to this cap if it never seems to be used?

[NealMorris]

Can anyone give me a brief overview of this instrument. I understand the minimum purchase is 250 CCDS and they pay £5.125p per year. They currently have a mid price of £126.80 for 250 CCDS, this implies a yield of 10.25%

Is that correct ?
Are they only available to institutions or commercial investors only or the public via normal brokers?

[Tara]

Can anyone give me a brief overview of this instrument. I understand the minimum purchase is 250 CCDS and they pay £5.125p per year. They currently have a mid price of £126.80 for 250 CCDS, this implies a yield of 10.25%

Is that correct ?
Are they only available to institutions or commercial investors only or the public via normal brokers?

No that is not correct. The yield is 8% if the price is £126.80.

I don’t think you will get much information here about this security as very few people seem to own it here. I have asked a couple of times about the Distribution cap and nobody seems to know anything about this.

[rippleog]

Distribution cap...there are no dumb questions..

why dont you email Nationwide and ask them ?

I suspect it because these are not bonds and Nationwide has no equity...these are CCDS...and for bonds to imitate equity the coupon has to be variable in some form...or something like that...

probably a dumb answer...

[GoSeigen]

Are these Nationwide NBS considered to be a higher risk than, for example, NWBD or the Aviva Pref shares? The yield is higher on NBS and so I assume that they are considered to be a higher risk.

Also, does anyone understand the purpose of the £17.91 Distribution cap on NBS? What is the actual purpose of the cap if the distribution is always £10.25?

The distributions are discretionary like an ordinary share so of course, more risky than an equivalent bond or even perhaps preference share. (But the corporate structure is completely different so not directly comparable.)

For other queries, please read the issuer documentation and come back if still not clear, referring if possible to the relevant text and document.

GS

[Walkeia]

I owned for many years - bought straight after they were issued and sold in the summer of 2021 - it was a nice trade.

A few things I’d note - 1. Settlement is a real pain. I believe it is Crest only (I forget which exact one it was) - either way it means most brokers cannot settle the instrument (HL for example). 2. It’s a professional product so you’ll need to sign a disclaimer and minimum size trade is 250 units which is about 30k at current pricing. 3. Cap that you ask about I would regard as useless - this yields in line with other CoCo’s and in the prospectus NWIDE are under no obligation to increase the coupon so why would they (this is from memory from a long time ago).

Can I ask - if you want a product like this; why wouldn’t you look at AT1 or one of the currency hedged versions. I actually re-entered bank sub-debt via this fund a couple of months back. It holds many European names and is much more liquid.

My thesis is basic … that policymakers have adequately fought the past war and regulated banks so much that a banking crisis is unlikely to be involved in any coming economic mishaps. At 9% YTM and 6% distribution yield I was happy to allocate some cash here. Since March I’m finding a lot I like away from equities and continue to build a much more diversified portfolio across asset classes

[ResourceOgre]

I own these, they have paid out reliably.

The point of these is that their payout is intended to be reliable, but is essentially discretionary. Hence the risk is real. While I do believe that post-2008 reforms have made institutions less vulnerable to excessive leverage of their own, the macro-economics for the UK are swirling round the toilet bowl atmo so I am less sanguine about general risk from other quarters.

Or, in other words, a bad enough recession will produce enough bad loans to screw things up, and trigger capital adequacy provisions, from that direction. A risk that would apply to much other fixed income also.

On the now-defunct Fixed Income Investor, there was a review at issue by Oliver Butt, witty and informative, which likened the approach of Nationwide to these being akin to a nudge and a wink, and "we'll see you allright".

I'm holding.

[Tara]

I owned for many years - bought straight after they were issued and sold in the summer of 2021 - it was a nice trade.

A few things I’d note - 1. Settlement is a real pain. I believe it is Crest only (I forget which exact one it was) - either way it means most brokers cannot settle the instrument (HL for example). 2. It’s a professional product so you’ll need to sign a disclaimer and minimum size trade is 250 units which is about 30k at current pricing. 3. Cap that you ask about I would regard as useless - this yields in line with other CoCo’s and in the prospectus NWIDE are under no obligation to increase the coupon so why would they (this is from memory from a long time ago).

Can I ask - if you want a product like this; why wouldn’t you look at AT1 or one of the currency hedged versions. I actually re-entered bank sub-debt via this fund a couple of months back. It holds many European names and is much more liquid.

My thesis is basic … that policymakers have adequately fought the past war and regulated banks so much that a banking crisis is unlikely to be involved in any coming economic mishaps. At 9% YTM and 6% distribution yield I was happy to allocate some cash here. Since March I’m finding a lot I like away from equities and continue to build a much more diversified portfolio across asset classes

What specific AT1 securities do you mean? I was looking at NBS as it was yielding over 8% at the time. Do you know of anything similar with a similar yield?

[Walkeia]

Hi Tara,

In my post I referred to the AT1 ETF - AT1s are a similar level of subordinated to the NWIDE CCDS but because Nationwide is a mutual the structure of their core capital instrument needed to be a little bit different (to replace PIBs). AT1s are issued by banks and Invesco AT1 ETF is a large ETF which owns them. There are USD, GBP hedged and EUR hedged options for the ETF. The reason I prefer this is liquidity and diversification - it holds a very large number of European bank names. If you google this you will find all the information you need.

Just a note that unlike PIBS; these securities were designed specifically to have losses inflicted upon them should the issuing financial institution get into trouble. I believe this has already occurred via Banco Popular in Spain a number of years ago and as such they are high risk instruments hence the yield.

[spencerlewis]

[quote="Walkeia"]I owned for many years - bought straight after they were issued and sold in the summer of 2021 - it was a nice trade.

Hi
Can you tell me how I go about buying these shares?
HL and others I have contacted can´t help.

regards
Spencer Lewis

[spencerlewis]

I hold these.

They are core capital unlike prefs...so riskier from capital perspective...
but arguably Nationwide is the one best UK credits ...

Hi
Can you tell me how to buy these shares.
HL and others can´t help me

spencer Lewis

[Tara]

I hold these.

They are core capital unlike prefs...so riskier from capital perspective...
but arguably Nationwide is the one best UK credits ...

Hi
Can you tell me how to buy these shares.
HL and others can´t help me

spencer Lewis

You should be able to buy these through most of the well known UK stockbrokers. Not sure why HL are not able to help. There is also a minimum purchase size of 250 shares and so at the current price investors will have to invest over £30,000.

[spencerlewis]

You should be able to buy these through most of the well known UK stockbrokers. Not sure why HL are not able to help. There is also a minimum purchase size of 250 shares and so at the current price investors will have to invest over £30,000.

Did you buy the shares?
If so via which broker?
regards

[Tara]

You should be able to buy these through most of the well known UK stockbrokers. Not sure why HL are not able to help. There is also a minimum purchase size of 250 shares and so at the current price investors will have to invest over £30,000.

Did you buy the shares?
If so via which broker?
regards

I have not bought them but there are other people on here who have bought them. I do not see why one of the main brokers like Interactive Investor would have any problem in buying them.

[ResourceOgre]

Bought them through YouInvest myself, as 250 share block.

iDealing also said they could. Except I didn't have enough spare cash at the time so backed out of that.

They are not intended to be retail, so broker may ask if you qualify as a professional investor before letting you trade them.

[Swanmore22]

Maybe of interest
Nwide tendered for £100m CCDS in Feb
https://www.nationwide.co.uk/-/assets/n ... 0521B00638

Swan

[88V8]

Maybe of interest
Nwide tendered for £100m CCDS in Feb

From the Q&A :

16. Can retail holders participate in the OMR Facility?
The OMR Facility is not available to or directed at any persons who would be retail clients within the meaning of the FCA rules. Given the complex nature of CCDS, and in light of applicable conduct requirements, Nationwide has not at any time offered or sold CCDS to retail investors (or authorised others to do so).

So that's us told

V8