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  1. #1
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    Cool RBOHA - Rabobank Prefernce Shares

    Hi Guys

    I am looking to build a low risk portfolio of bonds and hybrid type securities as a nest egg for an elderly relative. Among others I have been looking at RBOHA over the last week and cant quite see why they have increased 5 or 6 percent.

    Is this normal with these types of securities and if so will it be too risky for Nan?

    Cheers
    Traderdude

  2. #2
    Kanga ru Xerof's Avatar
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    IMO, perpetuals are entirely inappropriate for Nans. Stick to term deposits at the banks, or look at fixed term unsubordinated bonds issued by reputable companies. This is not advice, just my personal view. Seek professional advice from a reputable advisor - yes, there are some out there

  3. #3
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    Rabo issued a stack of debt here not so long ago. I heavily suspect the increase is a buy back funded by the proceeds. They have let them fall back to $82.00 and seem to have started buying again recently. I wouldn't be buying them for Nan. TD's are where Nan's live. And maybe some high quality bank bonds. But you will likely get better interest from the TD's.

  4. #4
    Kanga ru Xerof's Avatar
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    For Rabo to be able to buy back, there is a board resolution required, stating the time period during which the buy back will occur, and the maximum amount they may buy. I have not seen this announced, so I don't believe it is them (at least directly)

    I know a few people, closer to the action than me, think that they will elect to repay these in 2017, as the purpose for which they were issued becomes redundant under new rules take effect in 2013, i.e. they will no longer qualify as equity on their balance sheet. So IMO, these are being treated as 6 year bonds, not perpetuals. On that basis, its providing a good yield for a AAA rating - this might explain the shift in momentum and increased volume of late.

    And for traderdude, I stick with my comments re Nan - they are still perpetuals until proven otherwise
    Last edited by Xerof; 02-09-2011 at 12:39 PM.

  5. #5
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    The earlier repayment option is as a requirement of the Basel III global regulatory standard http://www.answers.com/topic/basel-iii

    Rabodirect offers fair rates for Nan.
    A quote attributed to Margaret Thatcher goes along the lines of
    "The problem with socialism is that eventually you run out of other people's money."

  6. #6
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    Awesome cheers everyone the info has been great

  7. #7
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    I must admit I haven't seen the IM. I just made the assumption that the NZ Branch is the one doing the buying. They were issued by Rabo Netherlands I think. And I don't know what the rules are about associated companies buying them back. I just don't know who out there would have pockets deep enough to speculate on whether these will be called in this environment. I would be surprised if Rabo didn't call them... but its not unheard of for a small foreign issuer to not call sub debt.

    Quote Originally Posted by Xerof View Post
    For Rabo to be able to buy back, there is a board resolution required, stating the time period during which the buy back will occur, and the maximum amount they may buy. I have not seen this announced, so I don't believe it is them (at least directly)

    I know a few people, closer to the action than me, think that they will elect to repay these in 2017, as the purpose for which they were issued becomes redundant under new rules take effect in 2013, i.e. they will no longer qualify as equity on their balance sheet. So IMO, these are being treated as 6 year bonds, not perpetuals. On that basis, its providing a good yield for a AAA rating - this might explain the shift in momentum and increased volume of late.

    And for traderdude, I stick with my comments re Nan - they are still perpetuals until proven otherwise

  8. #8
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    i think perpetuals are perfect for nan - why not. they arent risky and actually perform much like a rolling term deposit (usually better)

  9. #9
    Kanga ru Xerof's Avatar
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    But is nan willing to hang around for years waiting for the capital value to be recouped (RBOHA's were issued at 100, now only 85)

    I accept that entry at 85 is better than 100, and that 85 then becomes the benchmark for exiting, but my point is that a term deposit suffers no variance to capital price, unlike a perpetual (or any other bond for that matter)

    Perpetual prefs are 'risky' - they are one step above equity

  10. #10
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    Red face

    I think Rabo has indicated that they will be called at the time they turn into floaters as they no longer qualify as tier 1 Capital for banks. Their head financial guy was here recently on a non deal roadshow. Call will of course be at par
    Success is the ability to go from one failure to another with no loss of enthusiasm

  11. #11
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    Dubdee so they will be trying to buy as many as they can at 85c then
    Possum The Cat

  12. #12
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    One would think so particularily as the profit between purchase price and sale price ($1.00) goes straight to tier one capital as profit.

    The issue for them is though can the replace it with other tier one capital at a sensible price. This may not be the case so RBOHA might well stay of foot without a buy back. So I am not predicting a buy back but a convergence to par over the time to first call.

    So you can treat these more as a bond than a perp.
    Success is the ability to go from one failure to another with no loss of enthusiasm

  13. #13
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    why would nan need the principal? Ultimatly nan needs contiunous income over a period of until death. Perpetuals provide that. Other assets in the portfolio can be sold or other parts of her portfolio can be used to fund large costs that can't be borne by income (medical bills, new car etc).

    If I was nan I would hope the perpetuals never are called. Very hassle free.

  14. #14
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    The bigger problem for Nan might be the sub-ordination of these instruments.... Worth adding they are still highly rated. And if Rabo collapses the world has a big problem.

    And there's also this "From 8 October 2017 the rate will be reset quarterly at the same margin over the 90 day bank bill rate". If they don't call them for some reason, you are going to take a big capital hit, and reduced interest.

    This non-vanilla stuff is best left to investors rather than nans... and after looking at these last year, I am not convinced the interest and likely call in 2017, are compensation enough for the risk they may not call them.

  15. #15
    Kanga ru Xerof's Avatar
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    Yup, "Nan's" investment from a mere two or three weeks ago has lost 5 cents of its capital value - 85.5 to 80.5 - thats more than she is going to earn over the next year in interest, before she pays any tax, so lets say she'd break even in two years after tax

    lookin' good?

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