PIBS anyone?

T,

To be honest, I'd say that the best discussion on the matter is over on TMF's Banking board where all forms of Fixed Interest, especially PIBS, Prefs, and company debt has been discussed at very great length.

That was a very useful site for discussing the frankly amazing returns offered by the distressed issues from the likes of NatWest, RBS, Bradford and Bingley, Northern Rock and Lloyds. I remember picking up some RBS US prefs with a 60% yield at little over 10% of nominal value at the height of the Crunch (interest continued to be paid) or the B&Bs at 5p or less (vs 40p now). Ahhh, thems was the days....

Still a lot of value out there imo, certainly relative to Govvies.

For reference then OldBoyReturns has a site dedicated to Fixed Interest issues (mobile so can't link) and Collins Stewart do a weekly pref, PIBS, ECN list, which you can access from their site.

In a rush.

D

Hi t,

Fully endorse djp's comments. The link to OBR's site (a great, unremunerated resource) is www.fixedincomeinvestments.org.uk. The principal , Mark Taber, is very approachable.

Good luck.

Hi T,

I also endorse the above comments. From your perspective, as a "safety first" investor, in the current climate, I would guess that one of the key factors is the view that you take on the ability of the issuer to continue paying.

If you believe that the eurozone is in danger of break-up, then you need to consider the impact on each issuer of a possible dislocation in the banking system. Is there a danger of the issuer being declared insolvent and being forcibly nationalised or taken over? Consider this re Northern Rock and B&B:

4:38PM BST 20 Aug 2009

Private investors who bought permanent interest-bearing shares or Pibs in Northern Rock when the state-owned bank was a building society have seen their investments lose 80pc of their value following the Rock's decision to suspend interest payments...

...Earlier this year Bradford & Bingley, another former building society that had to be rescued by the Government, announced that its Pib holders would not be receiving interest. It was the first ever default in the Pib market.

In principle, I don't see the risk as much different to that of investing in preference shares such as NWBD and GACA, which yield over 8% currently. However, for any such instrument (including PIBS), you really need to study the prospectus to determine under what circumstances they may not pay out (and seniority relative to other debt the issuer may have). You then have to take a view of the ability of the issuer to withstand a financial crisis in which banks may have to write down debts owed to them by other banks or sovereigns and during which banks may once again become reluctant to lend to each other.

In this climate, I don't think there is any such thing as a "safe haven", except for cash in the short-term. But, as you know, my own style is a bit more aggressive and I try to look 5 years out, rather than worrying too much about short-term market gyrations (other than to take advantage of relative value opportunities that arise). Anyone must acknowledge, however, that there is no point looking 5 years out for any businesses that might not survive the next one or two years!

Best,

Mark

I started investing in PIBS in 1996 and still have almost all of them.

My first purchase cost £12,000 and the yield was 10%; they are still delivering a very useful £1,200 per annum. I added £20,000 worth in 2006 and 2 of them got into trouble in the banking crash, I had assumed that cautious building societies would not be taken in by silver tongued salesman; I was wrong and their PIBS were converted into Perpetual Subordinated Bonds, which have a lower yield with higher security.

My experience has been positive overall and profitable. I will buy more if cash is available and the price is right.

MD