Just Share Discussion Threads

[18bt] 27/9/2018 11:05

They do have the option to sell a portfolio of annuities backed with ERMs at much closer to EV, this releasing capital whilst remaining open to new business. The company really need to be clearer on what they will do rather than coming up with a list of possible actions.

[qs99] 27/9/2018 10:47

OK, but embedded value, less what people assess may be required on the increased cap cover, where does that get us? All I have seen is brokers giving a range of notes post that knowledge stating this is oversold and various TPs materially above this sub £1 figure. As we approach end of Sept consultation date (?), the price has risen from around 70p to 85p now and looking relatively strong still. So IMO this looks as though buyers are returning to what still could be viewed as a risked (yes) oversold position?

DYOR etc

[18bt] 27/9/2018 10:27

QS Much above the PRA's theoretical not in the real world value

[qs99] 27/9/2018 10:24

Looking strong again this morning.

[qs99] 27/9/2018 10:11

if above book value, where does that leave JUST fair value then?

[18bt] 27/9/2018 09:56

Rothesay Life have bought the UKAR ERM portfolios up for sale - so there is definitely a market for these things. I understand there were 4 bidders in the final round - so 3 were disappointed. Will be interesting to see how they valued the NNEG but UKAR say that it impacted the price by about £200m. However, price was above book value, so buyers have paid up for future profits.

See:

[qs99] 27/9/2018 09:05

Nice big turnaround from down 1.5p....off we go (hopefully)

[qs99] 26/9/2018 17:32

Last one of the day, but looking forward to see whether this can kick on for rest of the week and head back towards that magical £1.....

[qs99] 26/9/2018 16:10

so we are up nearly 15% from the low, is this dead cat bounce, or given the graph, sustained buying on an oversold position?

[qs99] 26/9/2018 15:55

continued strong buying it would seem

[scrapheap] 26/9/2018 13:12

Some more chunky buys just gone through .... interesting...

[eumaeus] 25/9/2018 20:20

Bolador, you said (549) "It is not possible for the PRA to be correct with regard to the guarantee". I read you to mean that it is not possible for the PRA to be correct. What did you actually mean?

Re data, perhaps I should have written that historical PRICE data is irrelevant to valuing the option. Does that help? Clearly data on net rentals is crucial to establish the present value of lost rentals during the deferment period.

On all the stuff about whether we should be short or long on prime London, I am baffled. Expectations are irrelevant to pricing the deferment, as I have said repeatedly.

[scrapheap] 25/9/2018 16:51

Norges Bank?

[bolador] 25/9/2018 11:19

553
I did not say I am certain of the valuation of the guarantee. A second read will show that I said that Just had declared that they were in talks with the PRA and were making provision accordingly including deferring the dividend.That is a serious warning.Would you like to see a man waving a red flag in the City with every message ?

By the way I could not possibly judge the valuation of the guarantee but would be inclined to go with the story that a camel is a race horse designed by a government committee and thus the PRA effort.

552
"not necessary to back test the NNG model against UK data"

567
4."Regarding net actual yields. Based on research by Philip Bracke " etc.

The slip in and out of real data as it suits, noted by others.

and finally


555
Evident confusion between actual and proposed. Is it possible to mislead in this case when what there maybe to mislead about is only a proposal ?

[scrapheap] 25/9/2018 08:23

Out of interest - why is the NNEG stuff only a 'back book' issue... is it because different reg cap rules applied to that business rather than new LTM business being written?

[eumaeus] 24/9/2018 15:42

1 On how easy it is, typically no maintenance costs for seller of leasehold. That’s why yields on freeholds are less than headline rentals.

2 “there is no market in any derivatives for hedging property” freeholds and leaseholds are derivatives, and there is a big market in these.

3 regarding gross yields, see 4 below.

4 regarding actual net yields, the PRA’s work was based on research by Philippe Bracke, which involved extensive research on property prices including prime London. This was supported by research on gross yields in London and rest of England. If you have rental data that contradicts their finding, you should write to PRA quickly.

5 (instant profit) yes I make an instant profit so long as I can sell you the deferment for more than fair value. I get the flat for £1m, lease it for 10 y for £230k, then sell the deferment to you for more than £770k. I have made an instant profit, yes?

6 Same point applies. On the arbitrage argument, I have already stated many times that arbitrage arguments are irrelevant. As have the PRA. It’s a question of investor preference.

[dasv] 24/9/2018 15:03

"eumaeus
I can easily hedge my sale of the deferment by purchasing a similar flat for £1m, then immediately selling a 10y lease for £230k. £770k+£230k = £1m. 10 years comes along, the lease expires, and I give you the flat.
So I need to sell you the deferment contract for more than £770k in order to make an instant profit. Which you will agree to, because you believe that property growth affects the price of the deferment.
On the arguments about maintenance, management cost &c, this why the yield on deferments is much less than headline rental. Headline/gross rental about 5%, net rental 2-3%."


1. "I can easily hedge my sale of the deferment by purchasing a similar flat" - I don't see what's easy about searching for and buying a flat, selling a lease, collecting ground rent, collecting maintenance costs, undertaking maintenance, refurbishing the flat at the end of the sale: in short being a landlord. "Easily" is doing a lot of work in this sentence.

2. You are hedging property prices by actually owning property, and becoming a landlord! I.e. there is no market in any derivatives for hedging property, yet you recommend applying option pricing to that market.

3. Gross rental yields in Mayfair are not "about 5%", they are actually just 2.6%. (

4. Subtract costs from gross yield to get net yield. I think you will find for this area they will be negative. E.g. with your spread for gross/net yields of 3% - net yield could be -0.4% for Mayfair.

5. When you say you will make an "instant" profit - how can it be instant with a wait of 10 years to complete the transaction?

6. In any case, I can't see how you'd make any nominal profit, let alone a real terms profit. Your lease is yielding 2.3% pa gross (return on capital (23%/10 years) minus costs (which may involve a full refurb if rented out)? You wouldn't even break even, let alone match inflation (Which is now 2.5%).

As you might say - calling this an "easy" way to make an "instant profit" shows a "profound misunderstanding of the issue." - see your post 557

Meanwhile after 10 years I now own a flat in Mayfair now worth maybe £2-3m for £1m minus the opportunity cost of investing that money elsewhere.

Further, this again all goes to show that the real world of property ownership is a far cry from the clean world of arbitrage elimination within a deep and liquid market for securities which Black 1976 seeks to model.

[eumaeus] 24/9/2018 14:08

563 Historical data is irrelevant to option value. I agree it is relevant to stress testing the option position, absolutely. But this has nothing to do with value. It's quite simple: the ERM cannot be worth more than the present value of the loan, or the present value of deferred possession of the property. If you are paying more than deferred possession, you have paid too much.

[qs99] 24/9/2018 13:36

ok, lots of good chat but does anyone think this will be a takeover target as per that article suggestion? DYOR

[eumaeus] 24/9/2018 13:30

559 why do you think it would be necessary to use historic data to price an option?

[eumaeus] 24/9/2018 13:29

558 The NNEG valuation is material now, because the valuation concerns the present, not the future. The 3 year transition is a generous allowance to correct a misvaluation that should have been corrected under the old ICAS regime. Transitionals are only allowed to offset the new rules, not the old ones.