88V8 wrote:hiriskpaul wrote:I sent an email to the company secretary to be mindful of retail investors. I also requested a dealing size of not more than 10k nominal on the new T2. We will have to see what happens. Prospectus probably 3-4 weeks away yet.
If the 5.5s exchange at 60% and one can buy them around 48%(?) tempting to buy another clip.
But then if the wheels come off they could be more fully bailed-in.
Anyone tempted?
V8
The 60% level is, bond pricing-wise, a numeraire. You can't exchange your old T2 at 60 cents and then sell the new 10NC5 at guaranteed par 100 and hence monetize those 12 cents between 48 and 60.
There is no arb here, it just means that the market implicitly prices the new 10NC5 T2 at 80 cents (rather than at 100 / par); 80% * 60c = 48c, with 60c being the new post-haircut principal equivalent (I assume you get bond with a par value of 100 but only 60% principal of your old T2 holding principal) and 48c being the market price of the old T2. Back of envelope calc, Ignoring accrued and settlement timing here.
Another way of looking at it is that the
market haircut - not the contractual one - is 52% rather than 40%, as the market assumes an immediate 20c discount to par (=80c) for the replacement.
Now you may think that an implied market price of 80c for the new 10NC5 14% T2 is too cheap (then buy the old T2 now) or too expensive (then sell) - that's a market view then.
It also tells you something about how the market views the reality of the Metro Bank rescue. At 48c for the old T2, the new 10NC5 14% T2 implicitly trades at ~18.5% IRR (20.8% to the 5y call date), i.e. unsustainable levels for any further T2 or other bank capital raising (which noone assumes anyway to occur for Metro Bank - it was hard enough to find someone to pump in fresh capital at rescue levels, despite the 40% T2 haircut sweetener), and Metro won't need any further capital, it's do or die now. Good luck with selling that mortgage book without eating into the capital position, haven't heard an update ever since the rescue announcement ...
The share price is at its historic all-time low (except for the closing price on the panic Friday before the rescue weekend, and just barely; 40.7 today vs 37.5 then), on the identical number of issed share capital (i.e. the equity raise/dilution hasn't settled yet).
Good luck to everyone - would be great to see a turnaround but I remain sceptical, mainly because the same management remains in place.