Northern Rock PIBs

Any of my financial market readers want to comment?

The Pibs, which were issued in 1994 at 100p, are now worth just 20p, having seen their price fall by 65pc from 57p following Northern Rock\’s announcement earlier this week that it would suspend interest payments on various debt securities whose terms and conditions allowed it. The bank said it was exercising its option to suspend interest to shore up its capital position.

If they ever do resume payment on them the accumulated interest must be paid. So, at these prices, an interesting investment….if there is any chance that they will resume payment.

Anyone know the likelihood? Are these perpetual notes simply doomed, or perhaps there is some reason why they will have to start paying again because there\’s a clause that requires them to do so before doing something else?

(Thinking, for example, about some of those old Tsarist bonds that got paid off only because the Soviets wanted to come to the markets?)

4 thoughts on “Northern Rock PIBs”

  1. “If they ever do resume payment on them the accumulated interest must be paid.” Are you quite sure?

    Tim adds: Says so in that newspaper piece, yes.

  2. Although now retired as an IFA, I’ll give it a go:

    If the society became insolvent, the PIBS holders would be last in the queue to get their money back. All the other investors would be paid first, and only if there was sufficient left would the PIBS holders be repaid. Also, unlike other building society investors, PIBS holders are *not* covered by the Financial Services Compensation Scheme.

    The other risk is that the market in PIBS is not very liquid, so investors may not be able to sell their PIBS when they want to – it depends on there also being buyers in the market at the same time.

    Interest payments are NON- CUMULATIVE so no future there, either…

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