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The Knimbies who say No

Nationwide P I B S Buyout Offer

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Here's an interesting development for the BTL-craxed mutual which famously has too many borrowers on its BMR:


Investors who hold bond-like assets issued by Nationwide Building Society can sell them back to the mutual early under an offer made yesterday.

Holders of Nationwide "Pibs" – permanent interest-bearing shares – have in most cases been offered face value or more for their holdings. However, holders of one particular Pibs issue will suffer a "haircut" of almost 10pc if they sell their investment back to the society.

Pibs are like corporate bonds in that they pay a set amount of interest yearly and trade on the stock market. However, they are "undated", so there is no maturity date and normally the only way for holders to get their money back is to sell to another investor.

They also differ from the type of fixed-term bond sold to savers over the counter because they are not regarded as deposits with the bank or building society that issued them. This means that there is no protection under the state deposit guarantee scheme if the lender goes bust. Fixed-term savings bonds are protected up to the £85,000 limit per person.

Five different issues of Nationwide Pibs can be sold back to the mutual under the offer. Two, the 6.875pc and 7.25pc issues, are redeemable at face value and one, the 7.859pc version, will net investors more than face or "par" value, as they will be bought back at a 6.5pc premium.

However, holders of two issues will get back less than par value if they redeem. The 6.25pc Pibs will be bought back at 91pc of face value, while holders of the 5.769pc issue will suffer a 5pc discount to par value.

The offers opened yesterday and closes on September 24 for private investors – those with no more than £100,000 in the Pibs.

Two other issues of Nationwide Pibs, paying 6pc and 7.971pc, are not included in the offer. They could already be redeemed at Nationwide's discretion – or "called" in City jargon – in 2016 and 2015 respectively. "This suggests to us that Nationwide is likely either to call these on their due dates, or to make tender offers at a later date," said Rik Edwards of Canaccord Genuity, the broker.

Charlotte Black of Brewin Dolphin, the wealth manager, said: "We think yesterday’s offer to private investors is a pretty fair one from Nationwide, with the buyback prices quite a bit higher than where the Pibs have been trading in an illiquid market.

"The only meaningful haircut on par value is on the 6.25pc issue, at 91pc of face value, although this issue has traded underwater since the heady days of 2007 – it reached as low as 50 in early 2009."

Nationwide said: "The society is inviting holders to tender their securities for purchase as part of its proactive approach to capital management. The offers are expected to improve and strengthen the quality and efficiency of the society's capital base and are designed to provide liquidity to investors. Future decisions with respect to capital calls will be made in light of the then prevailing market, economic and regulatory conditions."

Holders of Co-op Pibs face an uncertain future after the bank said it wanted to convert their holdings to new shares and bonds under a restructuring of the beleaguered lender. Some Co-op bonds are trading at less than half face value.

Some pretty tasty interest rates being paid out, will the savings made by the takeup be pushed into BTL?

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Here's an interesting development for the BTL-craxed mutual which famously has too many borrowers on its BMR:

Story is slightly misleading, if only by omission of essential detail. Why would you redeem a 7% bond at par in today's market, unless perhaps you read across from the Co-op's problems?

There's another element to PIBs, which is what happens after the call date. Often they switch to much less attractive terms, so investors are incentivised to cash them at par if called. So if any of these PIBs are approaching their call date, they could look very like a short-dated bond.

What's in it for Nationwide? It'll be the updated capital rules, which exclude PIBs from core capital requirements. They want to switch away from PIBs and towards securities that may look the same but count as core capital. An artifact of arbitrary rules.

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