Wednesday 8 October 2008

"Preferred Stock" - Your Government Invests ...

So, our money is to be invested in bank Prefs, and the talk is of "investment" and "commercial terms" (though no warrants).

Here's what the market says about RBS prefs: for example, its 6.6% is
sue, traded on the NYSEPar $25, price @ close of business yesterday $5.25: yield = 31.4% !
6.6% seems such a long time ago, eh ? Let's check again this evening ... and then see what the 'Brown Issue' looks like.

ND


++ UPDATE 15:30 Has Peston been blocked from City screens ??? ++


10 comments:

Mark Wadsworth said...

What's the time scale on that chart?

Do you know a good link for finding out current market prices of corporate bonds in the UK? The only stuff I can find is by subscription and v. expensive. Yahoo and so on only seem to do shares.

Nick Drew said...

It's 12 months, Mark

The NYSE-traded prefs all have tickers (the one I showed is RBS-PS) and are easy to find

but I don't know abt UK prices

Anonymous said...

"++ UPDATE 15:30 Has Peston been blocked from City screens ??? ++"

more info? what makes you say that?

Anonymous said...

http://www.guardian.co.uk/news/blog/2008/oct/08/robertpeston.creditcrunch

Man in a Shed said...

Will this rescue plan change the need for HBOS to be taken over, since they can sell out to the English Tax payer instead and help Gordon win the Glenrothes by-election ?

PS I'd like to say I understood what a 6.6% issue is - but I can only guess.

Mark Wadsworth said...

Nick, I need some background info to back up my new hobby horse being 'debt for equity swaps'.

If e.g. Bradford & Bingley bonds were trading at 60p in the £1 (before it got nationalised) then there'd be no harm in replacing them with new bonds worth 60p plus new shares with nominal value 40p, market value unknown.

With the B&B suitably recapitalised, the new bonds would be trading close to par (depending on interest rate) and so the bondholders wouldn't lose out unduly.

That's the quiet and unruffled way of sorting out the banking 'crisis'. Or we can do it the Nulabour way ...

Nick Drew said...

sammy - just a question, that's all: a dog-that-didn't-bark type of thing

shedman:

(a) dunno

(b) respec' to you for asking ! a preference share is basically a form of equity attracting a fixed dividend (like a loan) but which is not payable if the company has no money (like an ordinary dividend)

so a 6.6% Pref is one that pays that amount of dividend relative to the price at which it was issued; in this case, $25

but because it's a tradable security, its price varies from day to day, based on (i) rates available in the market elsewhere (so if market rates go higher than 6.6%, the price of the Pref will go down - otherwise there would be an arbitrage opportunity); and (ii) perceptions of the likelihood of the company defaulting on the dividend (quite high, just now !!!)

6.6% x ($25 / $5.25) = 31.4%

Nick Drew said...

Mark - depending on interest rate: indeed - & that's the $ 64-billion issue, I'd say ! (or maybe trillion, now ?)

and your question is ..?

(seems to me Alice is the fount of all knowledge !)

roym said...

does anybody have an inkling for who Robert Peston's banking source is? He's been referred to a few times now as running one of Britains largest banks.
i only ask because the leak to RP before yesterdays announcement has clearly worked to the govt/taxpayers favour.
the independant has a piece today saying that treasury officials think that one of Lloyds/Barclays/RBS broke ranks to hurry the bailout along? but who and why?

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