Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
Page 1
    • gadgetmind
    • By gadgetmind 17th Jun 13, 11:08 AM
    • 10,908 Posts
    • 8,899 Thanks
    gadgetmind
    • #2
    • 17th Jun 13, 11:08 AM
    • #2
    • 17th Jun 13, 11:08 AM
    "securities paying dividends of up to 13% a year" - ah yes, that wonderful phrase "up to".

    That's the coupon at par and many will have bought the PIBS and prefs at well over par. They will have bought these securities in the much-trusted Co-op to generate safe retirement income with yields of close to 6% in many cases. This income will now cease and their capital will have lost well over 50% of its value.

    Meanwhile, the senior bonds held by the big guys will be impacted far less.

    However, let's see how the LME is worded.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • mystic_trev
    • By mystic_trev 17th Jun 13, 11:11 AM
    • 5,147 Posts
    • 15,365 Thanks
    mystic_trev
    • #3
    • 17th Jun 13, 11:11 AM
    • #3
    • 17th Jun 13, 11:11 AM
    Not so great if you're holding their PIB's !

    Co-op Bank unveils £1.5bn rescue plan which 'could see 5,000 investors lose 30% of their cash'
    http://www.thisismoney.co.uk/money/news/article-2342570/Co-op-Banks-5-000-PIBs-investors-lose-30-cash-rescue-deal.html
    • alanq
    • By alanq 17th Jun 13, 11:28 AM
    • 4,152 Posts
    • 2,730 Thanks
    alanq
    • #4
    • 17th Jun 13, 11:28 AM
    • #4
    • 17th Jun 13, 11:28 AM
    However, let's see how the LME is worded.
    Originally posted by gadgetmind
    LME? The online financial glossary I looked at only gives London Metal Exchange.
    • bowlhead99
    • By bowlhead99 17th Jun 13, 12:17 PM
    • 8,714 Posts
    • 15,943 Thanks
    bowlhead99
    • #5
    • 17th Jun 13, 12:17 PM
    • #5
    • 17th Jun 13, 12:17 PM
    LME? The online financial glossary I looked at only gives London Metal Exchange.
    Originally posted by alanq
    Liability Management Exercise. Basically they will offer holders of existing bank debt, some new debt in the wider (and well capitalised) Co-op group and some equity in the bank alongside the parent group.

    As with any bank there are different tiers of debt at the moment, and if you hold the senior debt you're more likely to get new Co Op debt, while if you hold the junior debt or pref shares, you'll be offered a greater proportion of equity instead - which is what can happen when you invest in something more risky and inherently less secure. The debt and prefs if redeemed at current prices means the company kills it off at less than the par value that it was previously sitting in their balance sheet at.

    I thought it interesting that they said they were looking into obtaining some free independent financial advice for small retail holders of the securities who presumably aren't as sophisticated and might not understand what the tender means for them. I wonder what if any type of service they will provide in that regard.

    Still, if you don't understand pibs and psbs and bank prefs, you shouldn't have been holding any meaningful chunks of such securities in single banks when you saw a bunch of banks go under in the financial crisis. They will certainly be living up to their ethical reputation if they do source some independent free advice for such people.
  • MoneySaverLog
    • #6
    • 17th Jun 13, 12:54 PM
    • #6
    • 17th Jun 13, 12:54 PM
    I would not want to be holding any of their James Bonds today
    • gadgetmind
    • By gadgetmind 17th Jun 13, 1:01 PM
    • 10,908 Posts
    • 8,899 Thanks
    gadgetmind
    • #7
    • 17th Jun 13, 1:01 PM
    • #7
    • 17th Jun 13, 1:01 PM
    Another article on the subject.

    http://www.telegraph.co.uk/finance/personalfinance/comment/10124889/Will-Co-op-customers-fall-out-with-a-newly-listed-bank.html
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • pqrdef
    • #8
    • 17th Jun 13, 1:16 PM
    • #8
    • 17th Jun 13, 1:16 PM
    The debt and prefs if redeemed at current prices means the company kills it off at less than the par value that it was previously sitting in their balance sheet at.
    Originally posted by bowlhead99
    So they fix the balance sheet by writing off undated debt that they were never going to redeem anyway?

    I'm missing something here. If these things are on the balance sheet at par, they could swap £100 of stock at 13% for £10 at 130% and 90% of the "liability" would evaporate, although they'd still be on the hook for the same interest.
    • gadgetmind
    • By gadgetmind 17th Jun 13, 1:23 PM
    • 10,908 Posts
    • 8,899 Thanks
    gadgetmind
    • #9
    • 17th Jun 13, 1:23 PM
    • #9
    • 17th Jun 13, 1:23 PM
    Part of the problem is that Basel 3 redefined what was and wasn't loss adsorbing capital.

    http://en.wikipedia.org/wiki/Tier_1_capital

    Preference shares, PIBS, and the like cause a lot of complexity and the banks need to use LMEs etc. to do anything to them as they were sold as safe investments with prospectus rules to back this up.

    As for redeeming them, banks have to show the cost of repurchasing all their issued capital at market rates (not par!) on their balance sheets. This is why some banks found their balance sheets suffering as they recovered!

    As for the coupons, they actually matter very little in the grand scheme of things as the balance sheet is more important to regulators than cash flow.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • sabretoothtigger
    • By sabretoothtigger 17th Jun 13, 1:26 PM
    • 10,024 Posts
    • 6,604 Thanks
    sabretoothtigger
    I would not want to be holding any of their James Bonds today
    Originally posted by MoneySaverLog
    License to kill returns
    Tokyo residential prices have gone from 4x London in 1990 to ľ London in 2014
    Maybe this is one of those cases where you canít go home again,
    by Ben S. Bernanke, former Fed chairman
    • atypical
    • By atypical 17th Jun 13, 3:11 PM
    • 1,326 Posts
    • 846 Thanks
    atypical
    As for redeeming them, banks have to show the cost of repurchasing all their issued capital at market rates (not par!) on their balance sheets. This is why some banks found their balance sheets suffering as they recovered!
    Originally posted by gadgetmind
    Does that mean the opposite is also true i.e. balance sheets strengthen as a company's health declines? Due to liabilities reducing as the value of their debt declines if I haven't misunderstood.
    • gadgetmind
    • By gadgetmind 17th Jun 13, 3:25 PM
    • 10,908 Posts
    • 8,899 Thanks
    gadgetmind
    Does that mean the opposite is also true i.e. balance sheets strengthen as a company's health declines? Due to liabilities reducing as the value of their debt declines if I haven't misunderstood.
    Originally posted by atypical
    That part of the balance sheet improves but other parts can suffer. Quite how much they suffer depends on how honest they are about the state of the loan book, which TBH is the root cause of many of the issues.

    It's because of this that B3 is forcing banks to hold a much higher proportion of Tier 1 capital so that banks can "bail in" holders of these rather than needing a "bail out" injection down near the equity level.

    The most common kind of T1 that banks will be issuing in future are "cocos" (contingent convertibles) that *automaticallly* switch from being bonds to being equities if the T1 ratio falls below a certain level.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • pqrdef
    It's because of this that B3 is forcing banks to hold a much higher proportion of Tier 1 capital so that banks can "bail in" holders of these rather than needing a "bail out" injection down near the equity level.

    The most common kind of T1 that banks will be issuing in future are "cocos" (contingent convertibles) that *automaticallly* switch from being bonds to being equities if the T1 ratio falls below a certain level.
    Originally posted by gadgetmind
    All in aid of enabling the banks to carry on trading while even more deeply insolvent, so that when they do go bust they'll take the maximum number of creditors with them. If governments allow that to happen.

    Might have been better to go back to the old idea that they have to call the Receiver in at the point where only the shareholders lose.
  • opinions4u
    That part of the balance sheet improves but other parts can suffer. Quite how much they suffer depends on how honest they are about the state of the loan book, which TBH is the root cause of many of the issues.
    Originally posted by gadgetmind
    I'm baffled as to how the rest of the financial sector was falling over in 2007-2009 yet Co-op has only now realised it's loan assets contain some toxic nonsense.

    I can't believe that they have only just become so. It seems to me that someone somewhere (auditors?) has been hiding the truth for the last few years in the hope it will go away.
  • pqrdef
    I'm baffled as to how the rest of the financial sector was falling over in 2007-2009 yet Co-op has only now realised it's loan assets contain some toxic nonsense.
    Originally posted by opinions4u
    How many times do we read on these boards that you don't lose money on falling shares if you don't sell them? A lot of people would have been bust in 2008 if they'd had to value commercial property at what they could actually auction it for tomorrow. But they preferred to believe in the green-shoots-just-round-the-corner price. Supported of course by all those official growth forecasts from the Treasury and the OBR and the BoE and everybody else.
    • Ark Welder
    • By Ark Welder 17th Jun 13, 4:25 PM
    • 1,691 Posts
    • 1,539 Thanks
    Ark Welder
    http://www.co-operativebankinggroup.co.uk/servlet/Satellite?c=Page&cid=1357284286482&pagename=Corp/Page/tplCorp&currart=1371449548767&currmth=6
    Living for tomorrow might mean that you survive the day after.
    It is always different this time. The only thing that is the same is the outcome.
    Portfolios are like personalities - one that is balanced is usually preferable.



  • chickenandegg
    co-op perpetual subordinated bond
    Apparently Co-op is going to make some offer to the 13% subordinated bond holders. This bond is perpetual, with no call date, the coupon is cumulative. Co-op has suspended the coupon payment according to their website.

    What will happen to the bonds of those holders who will choose not to accept that offer? Any ideas?
    • gadgetmind
    • By gadgetmind 17th Jun 13, 6:07 PM
    • 10,908 Posts
    • 8,899 Thanks
    gadgetmind
    I'm baffled as to how the rest of the financial sector was falling over in 2007-2009 yet Co-op has only now realised it's loan assets contain some toxic nonsense.
    Originally posted by opinions4u
    There is a four letter answer to that question.

    http://www.thisismoney.co.uk/money/news/article-2332377/Questions-KPMG-audit-troubled-Co-op-Bank-accountancy-firm-failed-spot-impending-financial-turbulence.html
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • gadgetmind
    • By gadgetmind 17th Jun 13, 6:10 PM
    • 10,908 Posts
    • 8,899 Thanks
    gadgetmind
    What will happen to the bonds of those holders who will choose not to accept that offer? Any ideas?
    Originally posted by chickenandegg
    OK, I threw in the TLA "LME" without explanation, which was my bad as I should have know that not everyone dabbles in bank paper beyond ordinaries.

    To prevent hold outs, the first step before a haircut (LME) is a CAC.

    http://en.wikipedia.org/wiki/Collective_action_clause

    This basically means that the turkeys that don't vote for Christmas get stuck in the oven anyway.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • happydays100090
    co-op bond situation


    when everyone is talking about bonds
    do they mean the savings product
    "fixed rate fixed term bonds" ?

    i ask as i have all my savings tied up in a 2 year fixed bond with the co-op

    so am i going to get no interest? and given shares ?
    and am i going to lose 30% of their value as stated in the guardian article ?

    regards
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

1,290Posts Today

5,539Users online

Martin's Twitter