Santander for Aviva refugees

[GoSeigen]

Great investment idea here for stung Aviva investors: Santander CoCos. Santander today failed to call their CoCos as expected -- the opposite to what Aviva did thereby elevating them to darling status for hurting pref investors.

Santander's failure to call turns these from short-dated bonds into quasi-perpetuals.

You can safely invest your money here and have a very good chance of not seeing your capital again -- a perfect substitute for those pesky irredeemable shares.

https://www.bloomberg.com/news/articles ... -investors




GS

[hiriskpaul]

Interesting. I have not invested in any of this new style bank capital, apart from the Lloyds ECNs . The terms have always looked awful for the returns offered. Perhaps this will lead to some better pricing!

For retail investors this is hard stuff to buy now anyway, even in the secondary market, as the FCA has told brokers to not allow retail to invest in it.

[GoSeigen]

Interesting. I have not invested in any of this new style bank capital, apart from the Lloyds ECNs . The terms have always looked awful for the returns offered. Perhaps this will lead to some better pricing!

For retail investors this is hard stuff to buy now anyway, even in the secondary market, as the FCA has told brokers to not allow retail to invest in it.

On a more serious note, I've been dipping into Manchester BS PIBS MBSP/R recently. Any thoughts Paul? Here's a short list of my impressions:

1. Very important: this is a tiny financial company. The PIBS at current value are barely worth £2m. If it went bust no-one would even notice. Not one to take large bets on perhaps.
2. They've just lost an appeal in their court battle with Grant Thornton. Apart from a new bill for costs that this entails it may also put to bed any hopes of a large payout. Interesting for me is this may be the end of a simple method of burning up any profits.
3. Their asset book was junk but is a bit less awful now after taking losses on their dodgy derivatives and selling some of their risky book.
4. They are often compared to West Brom. This is silly because West Brom look like a slick operation in comparison.
5. However, these are the only two building societies which issued PPDSes as part of their rescues. Only thing is, as far as I can see West Brom PIBS got shafted in the rescue and had to accept a degree of equality or even junior status, but the only punishment I can see that Manchester BS PIBS have received is cancellation of distributions. My reading of the various terms is that the PIBS are actually senior to the PPDS. YMMV.
6. Nationwide are rumoured to be the holder of those PPDS. If so they have a fair amount of skin in the game and also deep pockets.
7. Manchester management have looked completely inept but my reading of the accounts is that the underlying business is not unprofitable and generates some cash flow.
8. The PIBS have been marked down severely and trade at roughly half the price of the West Brom PIBS. Clearly they could go to zero, but compared to the situation a couple of years back I think these have been largely de-risked.

Very interested in thoughts of anyone else who has looked at these.

GS

[GSVsowhat]

I suggest caution on the Santander EUR 6.25% that were not called on the first call date. The bonds can be called by the bank on a rolling quarterly basis at par from June, so not really quasi-perpetual. Economics can change and should they have surplus capital they could call this at very short notice.

[GoSeigen]

On a more serious note, I've been dipping into Manchester BS PIBS MBSP/R recently.
GS

Manchester Building Society's 2018 full year report is now available here:

https://www.themanchester.co.uk/Main/Fi ... nformation


In summary, they made a loss as expected due to costs of their court battle with Grant Thornton. The losses leave them up tight against their Capital limits and in breach of some of the regulator's "qualitative" capital requirements. There is thus a going concern warning and heads-up that the PIBS interest will probably not be paid in 2019.

The business is essentially in rundown and as such is generating heaps of cash. As a result I like the scenario and will decide whether to add more PIBS when I have seen what happens to their pricing. For now a bid seems to have appeared, though at a slightly lower price than I had been buying at...


GS

[XFool]

On a more serious note, I've been dipping into Manchester BS PIBS MBSP/R recently.
GS

Manchester Building Society's 2018 full year report is now available here:

https://www.themanchester.co.uk/Main/Fi ... nformation


In summary, they made a loss as expected due to costs of their court battle with Grant Thornton. The losses leave them up tight against their Capital limits and in breach of some of the regulator's "qualitative" capital requirements. There is thus a going concern warning and heads-up that the PIBS interest will probably not be paid in 2019.

The business is essentially in rundown and as such is generating heaps of cash. As a result I like the scenario and will decide whether to add more PIBS when I have seen what happens to their pricing. For now a bid seems to have appeared, though at a slightly lower price than I had been buying at...


GS

Just to point out - The above post does not make "sense". I refer not to the contents but the subject, which is different to the thread in which it appears. So, if you go to the SUBJECT AREA thread containing it, you won't see it!

I only picked up on it because, as it was a fresh post, it was shown at the top of the SUBJECT AREA thread list. I guess it will again now via this post.

[GoSeigen]

Just to point out - The above post does not make "sense". I refer not to the contents but the subject, which is different to the thread in which it appears. So, if you go to the SUBJECT AREA thread containing it, you won't see it!

I only picked up on it because, as it was a fresh post, it was shown at the top of the SUBJECT AREA thread list. I guess it will again now via this post.

I agree XFool, but was told by the mods that this is the best way to do things: I have had posts deleted by Mods in the past for no other reason than that they were started in a new thread ("You are starting too many new threads" or words to that effect).

Personally I think it's loony but I comply because I can't be bothered to resubmit a deleted post several hours after a discussion has moved along...



GS

[GoSeigen]

Manchester Building Society's 2018 full year report is now available here:

https://www.themanchester.co.uk/Main/Fi ... nformation


In summary, they made a loss as expected due to costs of their court battle with Grant Thornton. The losses leave them up tight against their Capital limits and in breach of some of the regulator's "qualitative" capital requirements. There is thus a going concern warning and heads-up that the PIBS interest will probably not be paid in 2019.

The business is essentially in rundown and as such is generating heaps of cash. As a result I like the scenario and will decide whether to add more PIBS when I have seen what happens to their pricing. For now a bid seems to have appeared, though at a slightly lower price than I had been buying at...

In the days since the annual report MBSR and MBSP prices have moved up a bit and there is still a bit of a bid. I guess other investors are comfortable with the results. If MBS is not toast these PIBS should give a decent return from here -- but beware very wide trading spreads.

GS

[GoSeigen]

Manchester Building Society's 2018 full year report is now available here:

https://www.themanchester.co.uk/Main/Fi ... nformation


In summary, they made a loss as expected due to costs of their court battle with Grant Thornton. The losses leave them up tight against their Capital limits and in breach of some of the regulator's "qualitative" capital requirements. There is thus a going concern warning and heads-up that the PIBS interest will probably not be paid in 2019.

The business is essentially in rundown and as such is generating heaps of cash. As a result I like the scenario and will decide whether to add more PIBS when I have seen what happens to their pricing. For now a bid seems to have appeared, though at a slightly lower price than I had been buying at...

In the days since the annual report MBSR and MBSP prices have moved up a bit and there is still a bit of a bid. I guess other investors are comfortable with the results. If MBS is not toast these PIBS should give a decent return from here -- but beware very wide trading spreads.

GS

Manchester Building Society recently announced that they had been granted permission to appeal their case against Grant Thornton in the Supreme Court. The downside is maybe another couple of million in costs. The upside is potentially much larger -- if they either are awarded more damages than the token amount at appeal, or if Grant Thornton are deemed responsible for costs. Curiously the PIBS prices have fallen since the news.

Half-year results are out soon, and I don't see why they shouldn't show further cash generation. What will be interesting to see is if profits are forthcoming. I feel the business should be fairly well geared to interest rate hikes too: good cashflow and shrinking balance sheet maybe means they can be stingy with their savings rates while raising mortgage rates in line with competitors. I'm thinking of the possibility that the BoE needs to raise rates to defend sterling against Brexit anxiety.

Against the above are well-known headwinds, the biggest perhaps being the very weak capital position. However, with Nationwide being a large investor, are they going to let MBS fail??


GS
Disclosure: been adding to holdings in both MBSR and MBSP, most lately MBSR@16p.

[johnhemming]

PTA is quite a threshold. I would not think the appeal was other than on a point of law so I would be surprised if the costs were more than 100K.

[GoSeigen]

PTA is quite a threshold.

Sorry, don't understand this. Parent-teacher association??

GS

[johnhemming]

Permission To Appeal

[GoSeigen]

Half-year results are out soon, and I don't see why they shouldn't show further cash generation. What will be interesting to see is if profits are forthcoming. I feel the business should be fairly well geared to interest rate hikes too: good cashflow and shrinking balance sheet maybe means they can be stingy with their savings rates while raising mortgage rates in line with competitors. I'm thinking of the possibility that the BoE needs to raise rates to defend sterling against Brexit anxiety.

Against the above are well-known headwinds, the biggest perhaps being the very weak capital position. However, with Nationwide being a large investor, are they going to let MBS fail??


GS
Disclosure: been adding to holdings in both MBSR and MBSP, most lately MBSR@16p.

Funny there has been no comment about MBS half-year results. As expected there was very robust repayment of outstanding mortgages of more than £20m over the previous year. This cash generation dwarfs the expenses of the recent court cases.

MBS now has cash balances of about £38m with the BoE, while the PIBS "market cap" is in the region of £2.5m. The company returned to profit this half year and with the reducing asset balances its capital woes seem to me all but behind it. If the society winds down over ten years at the current pace of mortgage repayments and ends up with a surplus, then the PIBS will be repaid at 100p, giving >20% CAGR for MBSR and MBSP at current prices even without any interest payments.

These prices look absurdly low to me and I have added to my already overweight position.

[EDIT: Sorry, here's the link to the results:

https://www.themanchester.co.uk/downloa ... n-2019.pdf
]
GS

[88V8]

Funny there has been no comment about MBS half-year results.
These prices look absurdly low to me and I have added to my already overweight position.

I went back a couple of pages looking for the thread you thought you were posting on..... anyway.... I hold a few of these harking back to an old topic on TMF. The price has done nothing but sink, I guess they are fairly illiquid and no one is paying much attention to events nor results.
Including me, tbh.
But thanks for the heads-up, I just added to MBSP at <14p.

V8

[Surerera]

Hi GS, I'd forgotten about these PIBs, but having had a look I agree they are cheap so bought a small amount today. Liquidity is obviously a problem but I'll keep my eye out for any that come on offer.

Surerera

[everhopeful]

There are no coupons being paid by these PIBs due to the shortfall in CET1 capital so the only value is in the potential for redemption at a price higher than their current value perhaps at par. Your post GS implies that this redemption might occur in 10 years as the Society winds down. Is this an agreed strategy of the Society to wind down? I am sorry if this has been covered previously but I could not see any reference to winding down in these latest results.

[GoSeigen]

There are no coupons being paid by these PIBs due to the shortfall in CET1 capital so the only value is in the potential for redemption at a price higher than their current value perhaps at par. Your post GS implies that this redemption might occur in 10 years as the Society winds down. Is this an agreed strategy of the Society to wind down? I am sorry if this has been covered previously but I could not see any reference to winding down in these latest results.

To be clear, these PIBS are not redeemable / callable. What I was suggesting was that the Society might eventually be wound up (dissolved) and the PIBS repaid.

I don't agree that this the only source value for the PIBS. There are also the following possibilities, among others:
-resumption of interest payments if capital requirements are met.
-tender or exchange offer for the PIBS, as seen with West Bromwich PIBS recently.
-takeover: the PIBS would normally be replaced with a bond; the stronger merged business would be obliged to pay the interest.

Regards winding down, the society has made it clear that it is not in a position to issue new loans. The run-off of the balance sheet is discussed on page four of the linked results and the reader is referred to the 2018 Annual Report in the same section. In any dissolution of the Society the terms of the PIBS make clear that holders are entitled to the principal value of the shares only, and not to any surplus.

Of course it's possible MBS might get healthy enough to return to its normal business and not ever dissolve, but I think that would be accompanied by restoration of interest payments, in which case the yield one is purchasing is close to 50% -- not too shabby IMO. I myself am only counting on a full repayment of the PIBS without any further interest payments; ten years is a guess based on the current rate of mortgage repayments -- there may be a few mortgages with a longer life; I don't know how those would affect the company's lifespan.

GS

[GoSeigen]

I went back a couple of pages looking for the thread you thought you were posting on.....
V8

The relevant posts have the correct subject. TLF mods (Melonfool, TJH IIRC) have stated in the past that they prefer the subject line to be changed rather than a new thread started, which is what I did.

GS

Moderator Message:
In this instance please could we either start a new thread on the new (but related) subject, or widen the thread title to be inclusive of both of the related subjects. I have taken the liberty of editing the thread title of the more recent posts to do the latter. That way helps other Fools and anyone searching. Regards, dspp

[Alaric]

. What I was suggesting was that the Society might eventually be wound up (dissolved) and the PIBS repaid.

Can you be sure that some clever lawyer or merchant banker cannot devise some scheme whereby the PIBs are repaid at zero or derisory value?

In the Life Assurance field, there are Phoenix, Chesnara and others who will take over and run off broken insurers.

Is anything similar happening in the Building Society world?

[GoSeigen]

. What I was suggesting was that the Society might eventually be wound up (dissolved) and the PIBS repaid.

Can you be sure that some clever lawyer or merchant banker cannot devise some scheme whereby the PIBs are repaid at zero or derisory value?

In the Life Assurance field, there are Phoenix, Chesnara and others who will take over and run off broken insurers.

Is anything similar happening in the Building Society world?

Doesn't keep me awake at night.

GS

Moderator Message:
subject line tweaked by me, over many recent posts on this most erudite thread, dspp