Co-op Bank Bonds to Shares


J

Judith

A friend was telling me about the problems people who hold certain Co-op bank
bonds (earning between 5% and 13% interest) were expecting to experience - he
thought it was terrible and that they were being ripped off, losing their life
savings.

The bonds in question are known as PIBs (Permanent Interest Bearing shares),
perpetual subordinated bonds and floating subordinated notes; it is the
intention that they are replaced with shares. I could not believe half the
things he was telling me - so I have been trying to understand the situation,
and put some counter "facts" together for him The following is what I have
gleaned from various places. It is more than likely that I have misunderstood
articles that I have read - and got some "facts" wrong - if I have got anything
wrong - or if anyone can throw further light on my understanding, it would be
much appreciated. My disjointed claims:

A PIB is like an IOU or a bond in that it represents money that the lenders
have lent to financial institutions. However, PIB issuers are under no
obligation ever to repay the money - hence the "permanent" in the name. Holders
receive variable dividends linked to the profits of the bank.

Permanent interest-bearing shares and perpetual subordinated bonds will have
been bought via a financial adviser or stockbroker; so anyone buying them
should have been advised of the risk when they bought them. They are not
something to enter in to lightly. Savers need to take great care when buying
PIBS and their near equivalent, perpetual bonds, as both are stock market
investments. The risk of losing some, or even all, of your money is much
greater than with a bank or building society account. How much of your money
you get back can depend on decisions by the institution and the price at which
the PIBS trades in the market when you decide to sell.

Their rates of interest are not guaranteed either and can fall in some
circumstances.

Co-op perpetual bonds are classed as junior subordinated debt which means they
stand right at the back of the queue of creditors should the bank go under.
I think that there are something like 15,000 individual Co-op savers with £65m
invested in the bonds; the amount invested by individuals is only 0.05% of the
total invested in bonds and is something less than £5,000 each on average
For the current proposal to be implemented 77% of the bond-holders will have
to agree - so it is not a foregone conclusion.

I read in one article that some Hedge Funds are actually currently investing in
the bonds - speculating in order to make money from the current problems.

(Some of the current greatest criticism of the Co-op's solution is coming from
the Daily Mail and Daily Telegraph. Ironic, as many people may have bought the
bonds based on their previous readings of investment advice in these journals)
 
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T

Tired

Judith wrote:
:: A friend was telling me about the problems people who hold certain
:: Co-op bank bonds (earning between 5% and 13% interest) were
:: expecting to experience - he thought it was terrible and that they
:: were being ripped off, losing their life savings.
::
:: The bonds in question are known as PIBs (Permanent Interest Bearing
:: shares), perpetual subordinated bonds and floating subordinated
:: notes; it is the intention that they are replaced with shares. I
:: could not believe half the things he was telling me - so I have been
:: trying to understand the situation, and put some counter "facts"
:: together for him The following is what I have gleaned from various
:: places. It is more than likely that I have misunderstood articles
:: that I have read - and got some "facts" wrong - if I have got
:: anything wrong - or if anyone can throw further light on my
:: understanding, it would be much appreciated. My disjointed claims:
::
:: A PIB is like an IOU or a bond in that it represents money that the
:: lenders have lent to financial institutions. However, PIB issuers
:: are under no obligation ever to repay the money - hence the
:: "permanent" in the name. Holders receive variable dividends linked
:: to the profits of the bank.
::
:: Permanent interest-bearing shares and perpetual subordinated bonds
:: will have been bought via a financial adviser or stockbroker; so
:: anyone buying them should have been advised of the risk when they
:: bought them. They are not something to enter in to lightly. Savers
:: need to take great care when buying PIBS and their near equivalent,
:: perpetual bonds, as both are stock market investments. The risk of
:: losing some, or even all, of your money is much greater than with a
:: bank or building society account. How much of your money you get
:: back can depend on decisions by the institution and the price at
:: which the PIBS trades in the market when you decide to sell.
::
:: Their rates of interest are not guaranteed either and can fall in
:: some circumstances.
::
:: Co-op perpetual bonds are classed as junior subordinated debt which
:: means they stand right at the back of the queue of creditors should
:: the bank go under.
:: I think that there are something like 15,000 individual Co-op savers
:: with £65m invested in the bonds; the amount invested by individuals
:: is only 0.05% of the total invested in bonds and is something less
:: than £5,000 each on average
:: For the current proposal to be implemented 77% of the bond-holders
:: will have to agree - so it is not a foregone conclusion.
::
:: I read in one article that some Hedge Funds are actually currently
:: investing in the bonds - speculating in order to make money from the
:: current problems.
::
:: (Some of the current greatest criticism of the Co-op's solution is
:: coming from the Daily Mail and Daily Telegraph. Ironic, as many
:: people may have bought the bonds based on their previous readings of
:: investment advice in these journals)
::
:: ---------------------------------------------------------------------------------------------------------------------
::
:: Corrections and additions most welcome.

Since the CO-Op is an openly socialist bank, does this failure represent a
crisis in socialism?
 
G

GB

A friend was telling me about the problems people who hold certain Co-op bank
bonds (earning between 5% and 13% interest) were expecting to experience - he
thought it was terrible and that they were being ripped off, losing their life
savings.
The clue is in the interest rates. You can't get 13% interest without
taking a risk.

The bonds in question are known as PIBs (Permanent Interest Bearing shares),
perpetual subordinated bonds and floating subordinated notes; it is the
intention that they are replaced with shares. I could not believe half the
things he was telling me - so I have been trying to understand the situation,
and put some counter "facts" together for him The following is what I have
gleaned from various places. It is more than likely that I have misunderstood
articles that I have read - and got some "facts" wrong - if I have got anything
wrong - or if anyone can throw further light on my understanding, it would be
much appreciated. My disjointed claims:

A PIB is like an IOU or a bond in that it represents money that the lenders
have lent to financial institutions. However, PIB issuers are under no
obligation ever to repay the money - hence the "permanent" in the name. Holders
receive variable dividends linked to the profits of the bank.
I don't know the details of the Co-op bonds, but I doubt that the
dividends are variable in that way. However, they can probably be
stopped if the bank is doing badly - that's the whole point for the bank
of issuing these instruments.
Permanent interest-bearing shares and perpetual subordinated bonds will have
been bought via a financial adviser or stockbroker; so anyone buying them
should have been advised of the risk when they bought them. They are not
something to enter in to lightly. Savers need to take great care when buying
PIBS and their near equivalent, perpetual bonds, as both are stock market
investments. The risk of losing some, or even all, of your money is much
greater than with a bank or building society account. How much of your money
you get back can depend on decisions by the institution and the price at which
the PIBS trades in the market when you decide to sell.

Their rates of interest are not guaranteed either and can fall in some
circumstances.

Co-op perpetual bonds are classed as junior subordinated debt which means they
stand right at the back of the queue of creditors should the bank go under.
I think that there are something like 15,000 individual Co-op savers with £65m
invested in the bonds; the amount invested by individuals is only 0.05% of the
total invested in bonds and is something less than £5,000 each on average
For the current proposal to be implemented 77% of the bond-holders will have
to agree - so it is not a foregone conclusion.

I read in one article that some Hedge Funds are actually currently investing in
the bonds - speculating in order to make money from the current problems.
I wondered about doing that, too. Why not?
 
G

GB


So nothing to contribute then.
Not much, but for what you were paying me ....

The main contribution was correcting your utterly crass misunderstanding
of the variability of the dividends.
 
®

®i©ardo

Judith wrote:
:: A friend was telling me about the problems people who hold certain
:: Co-op bank bonds (earning between 5% and 13% interest) were
:: expecting to experience - he thought it was terrible and that they
:: were being ripped off, losing their life savings.
::
:: The bonds in question are known as PIBs (Permanent Interest Bearing
:: shares), perpetual subordinated bonds and floating subordinated
:: notes; it is the intention that they are replaced with shares. I
:: could not believe half the things he was telling me - so I have been
:: trying to understand the situation, and put some counter "facts"
:: together for him The following is what I have gleaned from various
:: places. It is more than likely that I have misunderstood articles
:: that I have read - and got some "facts" wrong - if I have got
:: anything wrong - or if anyone can throw further light on my
:: understanding, it would be much appreciated. My disjointed claims:
::
:: A PIB is like an IOU or a bond in that it represents money that the
:: lenders have lent to financial institutions. However, PIB issuers
:: are under no obligation ever to repay the money - hence the
:: "permanent" in the name. Holders receive variable dividends linked
:: to the profits of the bank.
::
:: Permanent interest-bearing shares and perpetual subordinated bonds
:: will have been bought via a financial adviser or stockbroker; so
:: anyone buying them should have been advised of the risk when they
:: bought them. They are not something to enter in to lightly. Savers
:: need to take great care when buying PIBS and their near equivalent,
:: perpetual bonds, as both are stock market investments. The risk of
:: losing some, or even all, of your money is much greater than with a
:: bank or building society account. How much of your money you get
:: back can depend on decisions by the institution and the price at
:: which the PIBS trades in the market when you decide to sell.
::
:: Their rates of interest are not guaranteed either and can fall in
:: some circumstances.
::
:: Co-op perpetual bonds are classed as junior subordinated debt which
:: means they stand right at the back of the queue of creditors should
:: the bank go under.
:: I think that there are something like 15,000 individual Co-op savers
:: with £65m invested in the bonds; the amount invested by individuals
:: is only 0.05% of the total invested in bonds and is something less
:: than £5,000 each on average
:: For the current proposal to be implemented 77% of the bond-holders
:: will have to agree - so it is not a foregone conclusion.
::
:: I read in one article that some Hedge Funds are actually currently
:: investing in the bonds - speculating in order to make money from the
:: current problems.
::
:: (Some of the current greatest criticism of the Co-op's solution is
:: coming from the Daily Mail and Daily Telegraph. Ironic, as many
:: people may have bought the bonds based on their previous readings of
:: investment advice in these journals)
::
:: ---------------------------------------------------------------------------------------------------------------------
::
:: Corrections and additions most welcome.

Since the CO-Op is an openly socialist bank, does this failure represent a
crisis in socialism?
LOL!
 
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J

Judith

The main contribution was correcting your utterly crass misunderstanding
of the variability of the dividends.

Oh yes - the bit where you responded: "I don't know the details of the Co-op
bonds, but I doubt that the dividends are variable in that way"

I'm sorry for my crass misunderstanding - and I was so pleased that you knew
the details and were hence able to fully explain why my "understanding" was so
wrong.

I thought I had read that some PIBs could have variable rates of interest - I
am sorry that this was such a crass misunderstanding of the variability of the
dividends and that there is no such thing.

I suppose I should have said something like: "It is more than likely that I
have misunderstood articles that I have read - and got some "facts" wrong"

and then that would have brought out the helpful side in people.

Well thanks for clarifying that all PIBs are fixed rates - that's cleared up
one of my errors.
 
G

GB

Oh yes - the bit where you responded: "I don't know the details of the Co-op
bonds, but I doubt that the dividends are variable in that way"

I'm sorry for my crass misunderstanding - and I was so pleased that you knew
the details and were hence able to fully explain why my "understanding" was so
wrong.

I thought I had read that some PIBs could have variable rates of interest - I
am sorry that this was such a crass misunderstanding of the variability of the
dividends and that there is no such thing.

I suppose I should have said something like: "It is more than likely that I
have misunderstood articles that I have read - and got some "facts" wrong"

and then that would have brought out the helpful side in people.

Well thanks for clarifying that all PIBs are fixed rates - that's cleared up
one of my errors.
You're welcome. :)

It's nice to feel appreciated, so thanks for the feedback.
 
D

Derek F

A friend was telling me about the problems people who hold certain Co-op bank
bonds (earning between 5% and 13% interest) were expecting to experience - he
thought it was terrible and that they were being ripped off, losing their life
savings.

The bonds in question are known as PIBs (Permanent Interest Bearing shares),
perpetual subordinated bonds and floating subordinated notes; it is the
intention that they are replaced with shares. I could not believe half the
things he was telling me - so I have been trying to understand the situation,
and put some counter "facts" together for him The following is what I have
gleaned from various places. It is more than likely that I have misunderstood
articles that I have read - and got some "facts" wrong - if I have got anything
wrong - or if anyone can throw further light on my understanding, it would be
much appreciated. My disjointed claims:

A PIB is like an IOU or a bond in that it represents money that the lenders
have lent to financial institutions. However, PIB issuers are under no
obligation ever to repay the money - hence the "permanent" in the name. Holders
receive variable dividends linked to the profits of the bank.

Permanent interest-bearing shares and perpetual subordinated bonds will have
been bought via a financial adviser or stockbroker; so anyone buying them
should have been advised of the risk when they bought them. They are not
something to enter in to lightly. Savers need to take great care when buying
PIBS and their near equivalent, perpetual bonds, as both are stock market
investments. The risk of losing some, or even all, of your money is much
greater than with a bank or building society account. How much of your money
you get back can depend on decisions by the institution and the price at which
the PIBS trades in the market when you decide to sell.

Their rates of interest are not guaranteed either and can fall in some
circumstances.

Co-op perpetual bonds are classed as junior subordinated debt which means they
stand right at the back of the queue of creditors should the bank go under.
I think that there are something like 15,000 individual Co-op savers with £65m
invested in the bonds; the amount invested by individuals is only 0.05% of the
total invested in bonds and is something less than £5,000 each on average
For the current proposal to be implemented 77% of the bond-holders will have
to agree - so it is not a foregone conclusion.

I read in one article that some Hedge Funds are actually currently investing in
the bonds - speculating in order to make money from the current problems.

(Some of the current greatest criticism of the Co-op's solution is coming from
the Daily Mail and Daily Telegraph. Ironic, as many people may have bought the
bonds based on their previous readings of investment advice in these journals)
Not the first time this has happened. I had West Bromwich PIBs.
They invited s to sue them! They have more money than us and if we lost
we would have to pay their court costs.
http://www.wbpcl.co.uk/

Co-op being a name know to all and who claim to be an ethical company
naturally get more attention then other PIB's holders did when they were
virtually robbed.
Derek
 
N

Nick

A friend was telling me about the problems people who hold certain Co-op bank
bonds (earning between 5% and 13% interest) were expecting to experience - he
thought it was terrible and that they were being ripped off, losing their life
savings.

The bonds in question are known as PIBs (Permanent Interest Bearing shares),
perpetual subordinated bonds and floating subordinated notes; it is the
intention that they are replaced with shares.
I'm not clear on what is meant by replaced with shares? AIUI PIBs are
instruments used by building societies (which do not have shares). I'm
not clear if co-op bank is a building society or a normal company with
shares?

A company which does have shares would normally use a similar instrument
called a preference share, which could indeed be converted into shares
if default occurred (or under other contract specific circumstances).

I don't know much about PIBs but the idea of preference shares was to
give investors a compromise in terms of risk vs reward between holding a
safer bond with a fixed return and holding a more risky share which will
lose money if the company does badly but may offer a potentially
unlimited return if the company does well. Obviously if the company
defaults you are stuffed either way.

Investing is gambling. The investor only has a claim to being ripped off
if they were misled or poorly advised. Many investors only see potential
rewards and choose to ignore clear caveats.









I could not believe half the
 
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J

Judith

Co-op being a name know to all and who claim to be an ethical company
naturally get more attention then other PIB's holders did when they were
virtually robbed.
Derek

So the people who took a gamble were robbed were they?
 
J

Judith

You're welcome. :)

It's nice to feel appreciated, so thanks for the feedback.

I see that the Daily Telegraph, http://www.savvywoman.co.uk, and any number of
other finance web pages are being utterly crass in misunderstanding
the variability of the dividends. Perhaps you should write and explain to
them.


Investors who buy PIBs when they are issued get the interest rate or "coupon"
specified, which is normally fixed, although some rates are linked to
benchmarks such as Libor.

PIBs provide an income (an interest payment). The rate is often quite high
compared to rates offered by savings accounts, for example. The interest rate
is called the ‘coupon’ and is normally a fixed rate, although some can be
variable.



etc. etc.
 
J

Judith

Investing is gambling. The investor only has a claim to being ripped off
if they were misled or poorly advised. Many investors only see potential
rewards and choose to ignore clear caveats.

I agree - I have not seen any claim whatsoever that the Co-op customers were
mis-sold the bonds. Whether they read the small print is a totally different
matter.

Stocks and shares are gambling - the people who bought the bonds were gambling.
and thought they had made a safe bet (if indeed they thought about it at all).
They are now moaning because their bet is not paying out.
 
G

GB

I see that the Daily Telegraph, http://www.savvywoman.co.uk, and any number of
other finance web pages are being utterly crass in misunderstanding
the variability of the dividends. Perhaps you should write and explain to
them.
Nah, they wouldn't be as absolutely lovely as you, mate.

Investors who buy PIBs when they are issued get the interest rate or "coupon"
specified, which is normally fixed, although some rates are linked to
benchmarks such as Libor.
Well done
PIBs provide an income (an interest payment). The rate is often quite high
compared to rates offered by savings accounts, for example. The interest rate
is called the ‘coupon’ and is normally a fixed rate, although some can be
variable.
Well done
etc. etc.
The point is that the divis are not linked to company profits, which is
where you blundered. But do keep digging.
 
G

GB

I agree - I have not seen any claim whatsoever that the Co-op customers were
mis-sold the bonds. Whether they read the small print is a totally different
matter.

Stocks and shares are gambling - the people who bought the bonds were gambling.
and thought they had made a safe bet (if indeed they thought about it at all).
They are now moaning because their bet is not paying out.
Why are you making these obvious points, though?
 
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D

Derek F

I'm not clear on what is meant by replaced with shares? AIUI PIBs are
instruments used by building societies (which do not have shares). I'm
not clear if co-op bank is a building society or a normal company with
shares?
The PIBs the Co-op are reneging on were issues by the Britannia Building
Society later taken over by the Co-op
A company which does have shares would normally use a similar instrument
called a preference share, which could indeed be converted into shares
if default occurred (or under other contract specific circumstances).

I don't know much about PIBs but the idea of preference shares was to
give investors a compromise in terms of risk vs reward between holding a
safer bond with a fixed return and holding a more risky share which will
lose money if the company does badly but may offer a potentially
unlimited return if the company does well. Obviously if the company
defaults you are stuffed either way.

Investing is gambling. The investor only has a claim to being ripped off
if they were misled or poorly advised. Many investors only see potential
rewards and choose to ignore clear caveats.









I could not believe half the
Most investors were probably a bit like me and understood PIBs. They had
been around for quite some time and the degree of risk was regarded as
minimal prior to Building Societies diverting from the path they had
followed for years. Then several building societies bit the dust and had
to be rescued or were taken over.
For many years financial columnists had plugged PIBs and warned of a
risk they did not believe would happen.
Societies like West Brom had been covering up their true situation for
some time. As PIBs are not quoted in the press holders seldom checked
their value that normally did not vary much from month to month.
I hold mine in a self select ISA and knew nothing of the situation until
I was not credited my normal dividend in October 2010 when they only
paid 2.04%. I queried the situation with my broker and it took them two
months to come back with an incomplete answer. By that time I had
already got the full story.
Derek
 
D

Derek F

I agree - I have not seen any claim whatsoever that the Co-op customers were
mis-sold the bonds. Whether they read the small print is a totally different
matter.

Stocks and shares are gambling - the people who bought the bonds were gambling.
and thought they had made a safe bet (if indeed they thought about it at all).
They are now moaning because their bet is not paying out.
Remember when Building Societies were as safe as houses:)
Anyone initially buying the West Brom PIBs would/should have read the
prospectus
http://www.westbrom.co.uk/static/PIBSProspectus.pdf
Read thorough this part if you have the time or the inclination.
http://www.wbpcl.co.uk/detailed-background-to-dispute/
Derek
 
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A

aaa

PIBS are similar to Preference Shares in PLCs

They have a fixed percentage of interest on their face value (the value of the shares when issued), this will not vary.
E.g. a PIB with a face value of one pound might pay of dividend of 7 pence each year.

But the market or (trade) value of these PIBS can go up or down, e.g. you might be able to buy a PIB with a face value of one pound which pays a 7 pence dividend for only 50 pence, in which case you would get 14% return each year on your investment.
 

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