Co-Op bank 11% : yield in orbit.

Co-Op bank and group prefs have diverged in price. As of 20 Oct 2016:

Co-operative Bank 11% Sub Notes 80.19p
Yield: 15.647 Running Yield: 13.72

Co-operative Group 11% Final Repayment Notes 20/12/2025 129.75p
Yield: 6.567 Running Yield: 8.48

The price of the Bank prefs means either:

-A high chance the bank will bail them in. Therefore avoid.
or
-It's a stonking yield, a high worthy of the former chairman the Crystal Methodist himself, and therefore fill your boots.

Which is correct? Snippets of information I have found:

1.FT in Aug said the bank was hiring Bank of America to prepare itself for sale after turnaround
2.The bank did not feature in the 2016 stress tests presumably as too tiny https://www.eba.europa.eu/documents/10180/1532819/2016-EU-wide-stress-test-Results.pdf .
But makes a loss and failed the ones in 2014
https://www.rte.ie/news/business/2014/1216/667103-co-operative-bank/
3. Not sure it's entirely relevant but in November the EBA will release proposals for Covered Bonds
https://www.eba.europa.eu/-/eba-holds-a-public-hearing-on-covered-bonds
4. From this Graun article https://www.theguardian.com/business/2016/sep/23/co-operative-group-pre-tax-profits-fall-by-more-than-half-to-17m
"A month ago, the Co-op bank revealed a first-half loss of £177m, down from £204m, but warned that the economic fallout from the Brexit vote was a threat to its recovery plans. The bank said the uncertain economic backdrop was depleting its capital reserves – a key cushion against financial instability."
5. BTW the Bank prefs have just gone XD which has also depressed the price.

I'm sitting on my existing holdings of both, uncertain which way or whether to jump.

Any thoughts, my dears?

BTW there is an earlier wary thread on this matter, since when the price issue has become only more pronounced. http://www.fixedincomeinvestor.co.uk/x/forum.html#/discussion/371/co-operative-bank-plc-subordinated-tier-2-notes-11-2023

Comments

Sign In or Register to comment.