In finance, permanent interest bearing shares (PIBS) are
fixed-interest
A fixed interest rate loan is a loan where the interest rate doesn't fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments. Variable rate loans, by contrast, are anchored to the ...
securities
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
issued by
building societies
A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United Kingd ...
. PIBS become
perpetual subordinated bonds if their issuer
demutualise
Demutualization is the process by which a customer-owned mutual organization (''mutual'') or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, memb ...
s. Building societies use them in the way
public limited companies
A public limited company (legally abbreviated to PLC or plc) is a type of public company under United Kingdom company law, some Commonwealth jurisdictions, and the Republic of Ireland. It is a limited liability company whose shares may be free ...
use
preference shares
Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt inst ...
. Although similar to
bonds, PIBS typically exist as long as their issuer does.
Many PIBS were originally issued in an era of higher interest rates, and so appear attractive to investors looking for income in a world of lower interest rates. However, there are some disadvantages to PIBS; unlike bonds they have no fixed redemption date, so the buyer is at the mercy of the markets when they want to sell. Also, PIBS are not covered by UK government compensation schemes, interest does not 'roll up' - if a payment is missed, it is gone for good - and they rank behind depositors and other members in the event of financial distress.
PIBS often have a call date at which the building society (not the investor) has the option to cancel the share and repay the face value to the holder. This may be attractive to the society if, for example, the rate being paid on PIBS is well above current market interest rates.
The
Basel III
Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response to ...
rules are expected to phase out PIBS' inclusion in Tier 1
regulatory capital
A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ad ...
, meaning that building societies will be looking to replace PIBS as the opportunity arises. A replacement instrument has been created as
Core Capital Deferred Shares.
External links
*
Building Societies Association
The Building Societies Association (BSA) was originally established in 1869. It is the voice for all 43 UK building societies as well as six large credit union
A credit union, a type of financial institution similar to a commercial bank, is ...
What are PIBS?PIBS (permanent interest bearing shares)*
The Daily Telegraph
''The Daily Telegraph'', known online and elsewhere as ''The Telegraph'', is a national British daily broadsheet newspaper published in London by Telegraph Media Group and distributed across the United Kingdom and internationally.
It was fo ...
If you're looking for an income in retirement, check out Pibs*
Investors Chronicle
The ''Investors Chronicle'' is a weekly magazine in the United Kingdom for private investors and is published by the ''Financial Times'' Group. The magazine publishes articles about global markets and sectors, and news on corporate actions such ...
Guide to investing in Pibs
Corporate finance
Building societies
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