Friday 13 May 2016

Windfall profit on RBS early wind-up of ETSBRK

Having previously bought US shares directly via Comsec, I had been unhappy with the costs (an annual fee from the US broker that was holding the stock certificates, plus a hefty fee for each international trade due to both Comsec and their US agent charging a large fee). So when I wanted to invest in Berkshire Hathaway in 2011 I decided the ETS (Exchange Traded Security) issued by RBS (Royal Bank of Scotland) on the ASX was the way to go. I bought 113 ETSBRK at a price of A$75.19 (total cost $8,496.47 + $10 payment transfer fee). RBS recently had a special meeting to seek to have unit holders pass a resolution to close down the various RBS ETS offerings early (the normal termination date was May 2021), as they have never been very popular and obviously were a significant cost to RBS to maintain - RBS decided to cease their equity derivatives business in 2014. In order to get the unit holders to agree to the early termination date RBS proposed a 25% premium to the normal pricing for these units. The resolution was passed on 2 May, and yesterday I received a nice cheque from RBS for the sale of my 113 ETSBRK for $27,223.79. This represents a very nice profit (capital gain) of $18,712.32, or a return of 220% over five years.

To mitigate some of the capital gains tax implications I've decided to fix $75,000 of my Comsec margin loan balance for 12 months at 6.49% (the current variable loan interest rate is 7.13%), which will allow me to claim a tax deduction for the $4,867.50 prepaid interest this financial year.

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