The banks are having to pay 12% interest

mewwem

The banks are having to pay 12% interest on the preference shares that were issued to the government for the bailout but in Barclays case a whopping 14% to a sovereign wealth fund if they are so desperate for cash why not just pay a good rate of interest and attract savers or am I missing something, Banks deserve everything they get.

opinions4u

Simple.

Savers don't have enough money between them to share round.

The tier one balance sheet capital required to cover against exceptional events (such as a credit crunch) shouldn't come from savers (customers) anyway as this would massively increase their risks. It must always come from investors (shareholders) who are prepared to tolerate that risk for potential higher rewards.

If you wish to purchase preference shares in a bank, I don't doubt you could (if offered), but they have a different risk profile to a typical savings account, can reduce in value (but continue earning the agree rate against original value) and aren't covered by the FSCS.

sabretoothtigger

There are Barclays corporate bonds available yielding over 10% apparently. If you have 100k buy some.

Not quite as good a deal but the middle east fund is putting billions into a company whose share price just more then halved.
Who hold billions of 10 cents in the dollar debt, who have recorded a fall in profit of 33%, are based in an economy entering recession and have had a currency fall by 25%
Not exactly an enticing place to leave your cash for the long term


I believe the 14% bonds are tax deductible but the 12% ones are not.

miserable_ol_so_n_so

opinions4u wrote: »

Simple.

Savers don't have enough money between them to share round.

The tier one balance sheet capital required to cover against exceptional events (such as a credit crunch) shouldn't come from savers (customers) anyway as this would massively increase their risks. It must always come from investors (shareholders) who are prepared to tolerate that risk for potential higher rewards.

If you wish to purchase preference shares in a bank, I don't doubt you could (if offered), but they have a different risk profile to a typical savings account, can reduce in value (but continue earning the agree rate against original value) and aren't covered by the FSCS.

Can an institution stop paying interest on preference shares and continue to trade?

gozomark

miserable_ol_so_n_so wrote: »

Can an institution stop paying interest on preference shares and continue to trade?

depends on the terms of the preference share issue, and what you mean by continue to trade. Eg when Barings Bank went bust, the preference share holders lost nearly all their money (or was it all...), the bank continued to trade, but as part of ING

Blah99

miserable_ol_so_n_so wrote: »

Can an institution stop paying interest on preference shares and continue to trade?

No, not if they are cumulative preference shares. The company can temporarily not pay dividends on cumulative preference shares, but they will have to pay you back all the arrears at the first opportunity. Non-cumulative preference shares can be suspended at any time, and you get nothing. Remember of course they are still shares (despite being preference ones), so if the company goes bust etc...

purch

The banks are having to pay 12% interest on the preference shares that were issued to the government for the bailout but in Barclays case a whopping 14% to a sovereign wealth fund if they are so desperate for cash why not just pay a good rate of interest and attract savers or am I missing something, Banks deserve everything they get

Sounds like a good idea.

Take a piece of "news" thats 3 or 4 weeks old :eek:

Use that as my first post on an MSE Forum !!! :T

That'll give everything I say huge credibility !!! :rotfl:

sabretoothtigger

Has to be said the 12% pref shares are being sold alongside normal shares and being bought together by the government

HBOS is selling £8.5bn of ords and £3bn of prefs. RBS is selling £15bn of ords and £5bn of prefs. Lloyds TSB is selling £4.5bn of ords and £1bn of prefs.

So take RBS, 20bn total and only a quarter of that is the 12%. A quarter of 12% is only 3% which isnt half as good a deal

The barclays deal is pure pref share type money, so 100% of 14% more or less. Terrible in comparison, if the government acts like a silent partner barclays will have bought no advantage in their arrangement, opps..


http://www.breakingviews.com/2008/11/17/UK%20prefs.aspx?sg=breakingstories&ea=c


As of yesterday the government has 'lost' the country 8bn by investing in banks

gozomark

The barclays deal is pure pref share type money, so 100% of 14% more or less. Terrible in comparison, if the government acts like a silent partner barclays will have bought no advantage in their arrangement, opps..

you can't compare it as Barclays paying 14% v others paying 3% as the equity involves dilution whereas pref shares don't

miserable_ol_so_n_so

Blah99 wrote: »

No, not if they are cumulative preference shares. The company can temporarily not pay dividends on cumulative preference shares, but they will have to pay you back all the arrears at the first opportunity. Non-cumulative preference shares can be suspended at any time, and you get nothing. Remember of course they are still shares (despite being preference ones), so if the company goes bust etc...

Thanks for the info. I wanted to find out if the institution can decide not to pay, and still carry on trading as if nothing had happened. You gave the answer. What would the position be, if the institution was rescued by the government, like for Northern Rock, Bradford and Bingley? Are the preference shares in any way secure under those circumstances?

sabretoothtigger

gozomark wrote: »

The barclays deal is pure pref share type money, so 100% of 14% more or less. Terrible in comparison, if the government acts like a silent partner barclays will have bought no advantage in their arrangement, opps..

you can't compare it as Barclays paying 14% v others paying 3% as the equity involves dilution whereas pref shares don't

The barclays deal is more complicated but I think they have the option to purchase ordinary shares in future at a discount, in the meantime they also pay fixed interest.

Anyway preference shares count as dilution dont they, just not voting rights

On top of that barclays says they'll issue even more shares in the spring