Shearman & Sterling‘s London office has scooped an instruction to advise the lead managers on the first Tier 1 issue of preference shares since the late 1990s.
The firm advised Barclays Capital and UBS on the issue of £750m of HBOS preference shares. The groundbreaking deal is the largest preference share issuance seen in the sterling market to date – the previous record of £200m was set in 1997.
Shearman won the instruction despite not being on Barclays Capital’s legal panel thanks to corporate partner Peter King’s personal contacts at the client.
Before King joined Shearman from Linklaters in 2003, he advised a number of banks, notably Northern Rock when they issued reserve capital instruments to raise Tier 1 capital.
The Financial Services Authority (FSA), however, recently limited the use by banks of reserve capital instruments as a method for raising Tier 1 capital, as the regulator found that they do not provide sufficient protection to borrowers. Now up to 15 per cent of a bank’s Tier 1 capital can be raised by issuing reserve capital instruments.
King said the market for preference shares has been quite of late; until very recently, banks favoured reserve capital instruments over preference shares because they attracted a stamp duty deduction.
But due to the new limits introduced by the FSA on the use of reserve capital instruments, King said he expects more banks follow the lead of HBOS.
The focus of the HBOS product was to create a preference share that would attract both institutional and retail intermediary interest in the security. This resulted in a broad distribution, which included 39 retail intermediary investors, comprising 15 per cent block allocation.
HBOS was advised jointly by Clifford Chance and Linklaters.