Shareholders are under no obligation to accept Nationwide's bid, but there is a reset option on the shares which could switch the payout rate to just 1.5 per cent above the base rate. The offer price forms part of an increasing trend of offering at the market rate, instead of at par, as institutions know that investors do not want to be stuck with a low-yielding share. Banks and building societies are also under regulatory pressure as the Basel III reforms effectively exclude Pibs from being counted as Tier 1 or 2 capital. In addition, older Pibs are relatively expensive forms of capital in a low interest rate environment for institutions.
Pibs holders will be naturally upset if Nationwide doesn't improve its offer, but effectively the society is giving the choice between a loss of capital or loss of income and it may be better to extract as much capital as possible under the circumstances. Await documents.
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