Understanding corporate finance: regulatory capital: the legal and regulatory framework: tiers of capital: Permanent Interest Bearing Shares
Permanent Interest Bearing Shares
A building society may issue permanent interest bearing shares (PIBS) to strengthen their capital base, and which form part of a building society’s Tier 1 capital (CFM14120). These are defined as deferred shares for the purposes of BSA86/S119.
To qualify as PIBS the shares must have the following characteristics:
- Permanence. There can be no repayment with the exception of winding-up or with the consent of the FSA.
- Interest bearing. The rate may be fixed or variable. The rate may be directly related to the society’s profits.
- Non-cumulative. Investors lose the right to any interest that is passed.
- The payment of interest can be passed or abated if the society’s capital position would otherwise be impaired.
- The writing down of the outstanding principal can absorb losses.
- Rank behind ordinary building society shares on a winding-up.
- Become subordinated debt if the building society converts to a plc.