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Credit union preferred shares
January 17, 2021
6:27 am
Bill
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Yes, Norman1, I had already decided I'd demand another copy of the fine print as a condition if I choose to keep the shares.

I'm also a bit troubled by the decline from 4% to only 3.5%, seems way out of line with what 1-year deposits are paying these days plus suggests they think their ability to pay a dividend for 2021 has only been impaired by about 12-13% due to Wuhan virus/UK & South African variants economic impact and I'm not sure I'm comfortable with a view like that.

January 18, 2021
5:42 pm
Norman1
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The modest reduction in the payout of the Libro CU preferred shares may reflect what their members will accept rather than what they would like to pay.

If the rate were lowered instead to 2½%, I suspect lots of the holders would likely ask for redemption after looking at what other preferred shares are available on the market.

For example, TD Bank Series 18, 5-year rate reset, $25 preferred shares (TD.PF.J) are trading at $23.20 to yield around 5.1% right now. That yield will hold until April 30, 2023 when it will reset.

The reset will be to GOC5 + 2.70% on $25. If purchased at $23.20, that works out to be

 $25/$23.20 x (GOC5 + 2.70%) = GOC5 + 0.0776 x GOC5 + 2.9095%

January 27, 2021
9:32 am
Bill
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Called and got more clarification today. Apparently Libro has a list of folks ready to buy these shares if anyone wants to sell theirs, so that's how you get your principal. Got a slightly less confident tone from this person that 2021 dividend/interest rate will be set at 3.5%, though apparently that's what the "rumour" is. And you have to be an owner of the shares on Dec 31 to get the dividend declared for that year and paid the following April, so if you sell them any other day of the year you don't get any interest for that year. Because it's really a dividend, thus no proration.

I should have had this clarified at the time I purchased, but in my defense the whole tone of the deal was that I was buying something akin to a GIC, i.e. it had a maturity date, and I went with that. Apparently you have to be very careful when dealing with credit unions, they've got some unique stuff going on that they don't go out of their way to make clear.

January 27, 2021
4:57 pm
Loonie
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It's a matter of perspective. If what you're used to is bank stock dividends, then credit union dividends may seem unusual and harder to understand. But if you're used to dealing with credit union dividends and have never dealt with bank stock dividends, then the credit union ones will seem perfectly normal.

I'm not familiar with Libro's offering, but other CU preferred shares that I've looked at do not have a maturity date, just as other kinds of shares do not. What they do have is a schedule as to the earliest dates you can redeem them, as they are not sold on the open market. Typically, you can redeem a certain small percentage of your shares at your discretion after, say, two years, with a sliding scale until the year when you can redeem all of them if you wish. That point typically comes at about 7 to 10 years. If you wish to redeem faster, it will be at the CU's discretion as they need to have another buyer who wants them. It seems likely to me that when you bought these shares, you interpreted the date when you could, at will, redeem them all, as a "maturity" date because you had GICs on your mind.

I don't buy these shares because the redemption horizon is too long for me and I prefer more secure investments.

In any event, you've done well with them. It's clear from your many posts to this effect that you dislike credit unions and prefer banks in principle, so you should probably just close down this account and cash in your shares.

While i have never belonged to Libro, I've always heard positive things about it from a friend who does. Back when we lived in that area, spouse had accounts at its predecessor name, St. Willibrord CU, and always had good service and regretted giving it up when we moved away.

January 28, 2021
8:34 pm
Norman1
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Bill said

Called and got more clarification today. Apparently Libro has a list of folks ready to buy these shares if anyone wants to sell theirs, so that's how you get your principal. …

Their second explanation makes more sense than the first one. Kind of silly for the credit union to be buying back preferred shares while there is a waiting list of people wishing to buy the shares.

Let's hope they've contacted the people on the list to see if the people are still interested in buying preferred shares.

Got a slightly less confident tone from this person that 2021 dividend/interest rate will be set at 3.5%, though apparently that's what the "rumour" is. …

The yield is only "rumored" to be 3½%! sf-surprised I can see that waiting list of buyers thinning after the buyers find that out.

January 29, 2021
5:38 am
savemoresaveoften
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just to chime in, the ineligible dividend (aka interest) on these so called "preferred" are set annually by the board, and subject to change every year. As you can see, these terms are loosely used to describe the product, and is designed to make it easy to understand (to give them the benefit of the doubt re intention).

For one's own protection, ask the right questions such as how is the payout determined, is it guaranteed, etc etc. What you think may not be what you get.

February 9, 2021
5:33 pm
Bill
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Got the documents from Libro today, they're worded that there's going to be a transfer of ownership to a new, un-named buyer (someone on the waiting list, I presume), presumably Libro just acting as transfer agent. Also indicates that if a buyer were not available then this is to be treated as a redemption request, i.e. looks like they would redeem them if there were no buyers. Again, very important with credit union products to get all the details that are important to you, don't make assumptions that they're exactly like well-known products offered by banks or other financial institutions. It was the only locked-in longer than a year or so product that I've bought in some time, learned some stuff.

February 10, 2021
9:57 am
Doug
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Bill said
Called and got more clarification today. Apparently Libro has a list of folks ready to buy these shares if anyone wants to sell theirs, so that's how you get your principal. Got a slightly less confident tone from this person that 2021 dividend/interest rate will be set at 3.5%, though apparently that's what the "rumour" is. And you have to be an owner of the shares on Dec 31 to get the dividend declared for that year and paid the following April, so if you sell them any other day of the year you don't get any interest for that year. Because it's really a dividend, thus no proration.

I should have had this clarified at the time I purchased, but in my defense the whole tone of the deal was that I was buying something akin to a GIC, i.e. it had a maturity date, and I went with that. Apparently you have to be very careful when dealing with credit unions, they've got some unique stuff going on that they don't go out of their way to make clear.  

Yeah, that's as I suspected. In effect, it's sort of Libro's internal, de facto secondary market for their shares, a secondary market (i.e., their "list of willing CU share buyers") that may be empty from time to time. sf-cool

Cheers,
Doug

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