What are PIBS?

PIBS (Permanent Interest Bearing Shares) are securities issued by building societies and quoted on the stock market. They are a type of deferred share that pays interest over an indefinite period, offering a good yield coupled with a fairly safe investment. Although they are normally fixed-interest, a building society may occasionally issue floating rate PIBS, where the interest rate changes in line with other rates of interest.

PIBS are essentially a form of risk capital (ranking lower than subordinated debt), and have traditionally been used by mutual building societies, who cannot raise risk capital by issuing ordinary shares on the stock market like a bank. PIBS typically exist as long as their issuer does; if the building society that issued them demutualises, the PIBS will become Perpetual Subordinated Bonds (PSBs).

Although some floating rate PIBS are issued, the interest received is more normally based on the coupon rate at the time of purchase. As many PIBS were originally issued in times of higher interest rates, this can make them appear very attractive to investors looking for income in this era of lower interest rates.

However, unlike bonds, PIBS have no fixed redemption date, and so the buyer is at the mercy of the markets when they decide that they want to sell. However, some issues of PIBS may include a call date, on which the society may redeem the PIBS early. However, there is no guarantee to this, the FSA might refuse consent or the society may decide it is no longer advantageous to do so. In addition, PIBS are not covered by UK government compensation schemes, and they rank behind depositors and other members in the event of financial distress.

Like any other building society investments (including borrowers and savers), PIBS provide the holder with membership of the building society, and are consequently entitled to voting rights.