Just noticed this. It will take a little time to see if the above are highlighted in any way.


  • I presume this is something to do with the takeover of Chartered Financial Services a few days ago
  • Have just skimmed the document looking for quick clues. It is about a capital reorganisation in part to deal with the CCFS situation. There are references to some instruments no longer qualifying as capital but these do not include1SBA and 1SBB which are already above the line as debt liabilities. Part of the CCFS rationale was to gain access to lower cost funding. Hard to see 1SBA and 1SBB not being redeemed at the first opportunity. Why pay twice the current market rate? We shall see.
  • Is it possible to elabourate please as I'm not clear how OSB could replace 1SBA/B which borrowing at half the rate?

    I'm afraid I do not fully understand the rules and really would appreciate some better insight so my apologies in advance if I've got the wrong end of the stick on this one.

    I assume the view is that 1SBA/B will cease to be allowable Tier2 capital and therefore they redeem and them and replace with borrowings from savers or perhaps the wholesale market. This confuses me as 1SBA/B are subordinated debt which I undestood does count as Tier1/2 capital going forward rather than subordinated prefs or PIBS which broadly speaking does not count from 2021/2026 towards Tier 1/2 capital (I don't fully understand the transitional relief as much as I would like and also depending whether the rules are loosened due to Covid-19)

    As an observation if OSB do intend to redeem 1SBA next year it's currently mis-priced by a long way which doesn't seem likely. Also would not OSB would be scooping them up in the market now?
  • edited October 2020
    Hello JD: If you take a look at the thread "On the horizon" hopefully you will find what you need there. It will save retyping.

    As regards being allowable for capital purposes, let it be said, we may be wrong.

    However, that still leaves the cost of debt being good enough reason alone to repay these obligations.

    The interest rate for 1SBA is to be reset next March at broadly 5 years gilts plus 3.4%. Say, 3.4%. Banks are now raising 5 years funds at about half of that via various platforms.

    Charter Savings was recently acquired in order to better access lower interest rate finance. For a minimum of £5k, they are offering 1.26% for a 5 years bond. So 1.26% vs 3.4%. Why keep the higher rate debt if it can be redeemed which we think it can provided their regulators agree? We may be wrong though hopefully not.

    A recent added straw in the wind is this capital reconstruction which appears to be on part designed for further changes in the future.

    I repeat - we may be wrong but if we are right, goodee, if we are wrong we have 5 years OSB obligation paying 3.4% which isn't so bad currently.

    Finally, agree as regards the apparent mis-pricing.

    As regards not scooping them up, I don't think that is allowed as it would be tantamount to redeeming at less than par which is not allowed.
  • Thanks. I understand your thinking but we should be clear in case there any inexperience investors that Tier1/2 debt isn't comparable to a government guaranteed 5 year bond from OSB , in that Teir2 debt carries the risk of non-payment of interest and capital loss. Fro example the holders of the West Bromich and Manchester T1/T2 are sitting on 70-80% capital losses and aren't getting paid a coupon.

    Most banks have been busy the last 6 months issuing more T1/T2 capital to prop up their balance sheets to deal with Covid bad debts, so the only way OSB are going to call is if they replace it with some other form of T1/T2 which doesn't appear likely to me as it's inexpensive compared with their other T1/T2.

    With regard to scooping (I could have phrased that better) I'm not sure.
    PFG, IPF, LIV have all bought back bonds in the market below par in the last 6 months.
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