Friday 18 January 2013

Portfolio Buy: Scarborough/Skipton Building Society PIBS 8.5% (LSE:SBSA)

Another Building Society Permanent Interest-Bearing Share for the portfolio. 

This PIBS was issued under the name of the Scarborough Building Society, now it's part of the Skipton Building Society: the fourth-largest in the UK, with over 750,000 members and £14.1bn of assets (mainly retail mortgages).

There are several PIBS currently available around this yield mark but in the interest of diversification in the portfolio I snapped this one up as soon as I found I could trade it electronically in one of my brokerage accounts (many PIBS must be bought by telephone) - it was listed under 'Scarborough' rather than 'Skipton'. You also need to buy at least £2,500-worth (face value, that is).

The prospectus document states that there is no maturity date, although there are arrangements for winding up the security in the worst-case scenario. It is also possible that interest payments could be stopped, under certain dire conditions.

However, the latest half-year report shows a good performance, with increasing pre-tax profits and strengthened capital ratios - plus mortgage arrears have fallen. So no major problems on the short-term horizon. 

Unfortunately, this is not the best time to be buying fixed-interest securities, as there is a lot of money hunting yield at the moment. The price of this PIBS has been shooting up recently. But I am reasonably comfortable with the around 7.7% yield I will be earning on this for the foreseeable future (this is a buy-and-hold purchase).

There is a further risk, of course - the Building Society may wait for the price to sink back down and then find a way to buy these back at market price. After all, this is an expensive coupon for them, given the current low cost of capital from retail savings.

So, 'buyer beware'. 

[Purchase price: £1.16]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. How do PIBS rank in the capital structure of building societies these days? Still core tier 1? If so, they're not like with like with retail savings, which are liabilities rather than capital, ie. not loss absorbing.

    In this case the question for me would be, are they earning enough after tax to make sense for them to use retained earnings to buy back these PIBS? As things stand, they'd probably be better to use retained earnings to improve their capital position further so I'd guess the PIBS will be left for now.

  2. It appears that this pib pays out interest net. A disadvantage as you have to reclaim the tax paid, if held in an isa.

    8.5% / 116 = 7.3% not the 7.7% stated.

  3. Is this still available at the same sort of price? I guess I could try HL as that is where my ISA is. But how did you buy anything for £1.16p or have I misunderstood?
    Also, how do you reclaim the tax - via a tax return? I dont usually have to do one so that might put me off
    Many thanks

  4. Is there any reason why you only purchased this when available electronically and not by telephone?

    1. Good question: there is no real difference (apart from costing a little more) but I prefer it, particularly trading in an ISA or SIPP that is in someone else's name.

    2. Price seems to be falling off for these PIBs. Any ideas? These PIBS were bought at the same time as Nationwide PIBS and the price on those is holding up. The main difference between the two, at the time, was that the Skipton PIBS had a 'wide spread', perhaps this was a warning sign?