Lloyd’s Preference Shares

11th Mar '20 by Becks

12 comments 522 reads

Does anyone understand why LLPC has taken a dive in the past few days ? Particularly in the light of today’s interest rate cut, this looks odd. I can’t find any new concerns re Lloyds attempting to cancel the prefs at par, and surely the divi is safe. Odd. Now yielding 6.4% in a near zero interest rate environment.

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Becks

Premium Member

12 comments

timarr

11th Mar '20

Prefs are down across the board - £AV.A or £ELLA for instance have seen an equivalent selloff. The obvious reason is that investors have become more risk adverse - perhaps a folk memory of the concerns around financial prefs during the GFC?

But, yes, it looks overdone, especially with interest rates being cut.

timarr

Laughton

11th Mar '20

Thanks for flagging that up both. I've taken the opportunity to add a few more ELLA for a yield of 5.86%. Will check more closely and add if the drop continues.

timarr

11th Mar '20

ELLA is my favourite pref too, by a street. I was particularly taken by their response when Aviva tried to forceably redeem Aviva / General Accident prefs:

"Ecclesiastical notes Aviva's governance statement that "as one of the biggest companies in our sector, we aim to make our industry work better for everyone. That starts with us building trust with our customers, investors and shareholders by running our business honestly and transparently." Ecclesiastical trusts that Aviva will follow the principles set out in that statement when considering whether to pursue this course of action...

...Ecclesiastical has no plans to cancel its own 8.625% preference shares at par value through a reduction of capital."

https://www.investegate.co.uk/...

As ever, at this point, I'd like them cheaper. But I already have a bucketful.

timarr

Ben1

11th Mar '20

I have some LLPD from the days of the banking crisis, up 96% from what I paid for them. Very happy with them as they continue to give me the income I bought them for. I only wish I had bought more! But thanks for bringing this to my attention

Rustbucket

11th Mar '20

I do hold a few Lloyds Banking (LON:LLPD), they are back to around what I paid for them, of course I bought them more for the dividend than capital gains. I have just bought some Ecclesiastical Insurance Office (LON:ELLA), so thanks for that information Tim. Now after the market falls there are plenty of high paying dividend shares such as Aviva (LON:AV.) and Royal Dutch Shell (LON:RDSB) to consider also.

intuitive6191

11th Mar '20

Good to see a discussion on prefs. Bought Lloyds prefs when they had the dividend suspended in the last financial crisis. They have been an excellent investment.

Can remember when Lloyds tried to redeem them to ECNs ? A bit naughty - but didnt extend to my holdings.

It would help if Stocko had more info on prefs. www.fixedincomeinvestor.co.uk does not seem to have been updated in a while. This was a good source in its day.

Otemple3

11th Mar '20

I hold £ravp which are irredeemable and now yield nearly 11% and these have also drifted. I like the fact the coupon can be taken as scrip dividend tax free due to being a non-uk resident company. I don't know of any other Prefs with this tax advantage - does anyone else?

simoan

24th Mar '20

ELLA is my favourite pref too, by a street. I was particularly taken by their response when Aviva tried to forceably redeem Aviva / General Accident prefs:

Hi timarr,

I'm quite interested in ELLA myself at this point. Now yielding 7.5% in a zero interest rate environment it looks very interesting indeed. Perhaps I'm just being drawn to Prefs again due to making out like a bandit in 2008-09, however I'm 12 years older and so even more drawn to income generation than I was back then.

So what is the downside here? I don't suppose insuring churches has got too much more dangerous but I notice some of their policies include protection of rental income to landlords, which could generate significant claims in the current environment. Any idea what the exposure is here?

All the best, Si

unwise2

24th Mar '20

I am very familiar with bank prefs, in the 2008-2009 crisis they were yielding as much as 40%+ in a 0.5% interest rate envionment. Don't assume they are a one way bet at these levels.

timarr

24th Mar '20

Hi Si

Yes, I've been digging into the underlying protection, but I can't quantify the underlying exposure. It's unlikely they'd end up in serious difficulties but they could cancel the dividend on the prefs in extremis, which would save just under £10 million a year.

They are, historically, very conservative but in these situations it's never easy to be sure. Their Annual Report is due right about how and I'm not inclined to add to my holding until I've seen it, even if that means paying a bit more.

timarr

simoan

24th Mar '20

I am very familiar with bank prefs, in the 2008-2009 crisis they were yielding as much as 40%+ in a 0.5% interest rate envionment. Don't assume they are a one way bet at these levels.

Yes, the yields of bank prefs are still way lower than in 2008-09 but that was when there was a huge systemic risk to the banks and I don't see that happening... yet. Investing in bank prefs then was a bet they would be bailed out by the UK government on a "too big to fail" basis leaving the debt hierarchy in place. So it wasn't just about income but large capital gains too.

I have no interest in bank prefs, particularly Lloyds, and for the reasons timarr stated those of Aviva, General Accident etc. I'm 12 years older, so no need to knock the ball out the park any more as I have already reached financial independence. I just like the look of the differential between interest rates and the yield of a solid company like the ELLA Prefs to generate some income in my dotage.

All the best, Si

simoan

24th Mar '20

Hi Si

I read the recent results and noted the recent purchase by the spouse of the CFO which I take as a comforting signal. Of course, skipping a dividend or two is always one option they have (and I'd probably prefer that to them cutting their charitable donations tbh!) and it wouldn't be the end of the world in the long run as I will likely hold forever - not something I would have considered 10 years ago!

Yes, the ethical and conservative nature of the company is one of the attractions. I'd be hapy to take an initial stake if the price dropped more before the AR but look forward to having a good read through it.

Thanks for your thoughts!

All the best, Si

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Lloyd’s Preference Shares

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Becks

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