PIP's

triplea35

A friend was raving on about one of these. A Newcastle Building Society PIP, something about it being a high interest paying share. Anyone any info, or knowledge of where I can info, on them. I am into shares and ETF's but never heard of these.
Thanks

purch

Are you referring to PIBS ?

Permanent Interest Bearing Shares.

Newcastle B.S. has 2 different one's on issue, with a running yield of between 10 1/2 to 10 3/4 %

http://www.timesonline.co.uk/tol/money/investment/article6389784.ece

triplea35

Thanks purch. Just one letter can cause such confusion! I found items on PIP's (personal investment plans) but realised that was not what he was taking about. I will have a look at PIB's.

RayWolfe

They are only sellable in the market, i.e., not redeemable and I believe the minimum tradable amount is 10K.

Reaper

Interesting. I had previously overlooked them. I see they can be put into an ISA too.

Would I be right in thinking they would continue to pay out if the building society was taken over by another, but not if the government nationalised them (like Northern Rock)?

RayWolfe

I believe they are a special form of undated bond, so they may have preference over ordinary debt.

Reaper

Thanks. Looking at what happened in the past during takovers I think I am right that they ought normally to keep paying out.

In the case of Northern Rock they announced they would stop paying and not surprisingly the price crashed to 20p (issued at 100p). If they were ever to start paying again that is a great price but I think too much of a gamble for me.

purch

The most important thing to realise is that PIBS are subordinated debt.

The biggest risk (other than outright default) is that the Society falls below it's required Tier 1 capital levels.

In that case, the Society may either be forced to stop paying Coupons (Interest) on the PIBS, as many of the Banks have been with their similar Preference Shares, or they may be forced to convert the PIBS into a different type of Debt instrument that would qualify as Tier 1 capital, but might not be of equivalent quality to the PIBS.

West Bromwich BS were forced to do this last year.

http://www.westbrom.co.uk/westbrom/news?id=2157