Page last updated at 16:23 GMT, Monday, 2 June 2008 17:23 UK

B&B sees loss in wake of downturn

Bradford & Bingley branch
Bradford & Bingley has had problems with the buy-to-let mortgage market

Losses and a warning of tougher times ahead have sent shares in UK mortgage lender Bradford & Bingley tumbling.

Its shares fell 24% after it recorded a 8m pre-tax loss in the first four months of 2008 compared to a 108m profit in the same period last year,

B&B blamed problems with buy-to-let mortgages as people struggle to repay loans and said it would sell a 23% stake to Texas Pacific Group for 179m.

Chancellor Alistair Darling stressed that depositors' money was safe.

'Prudent action'

He applauded the lender's action, which also includes a plan to ask existing stakeholders to provide 258m of new capital through a discounted rights issue.

"They are doing exactly what the Bank of England has been encouraging them to, restructuring and strengthening their position so they can go forward," Mr Darling told the BBC.

The combination of the rights issue and the investment by private equity business Texas Pacific will raise about 400m in capital.

It has suffered further charges on its so-called structured finance portfolio, or its foolish investments linked to US subprime
Robert Peston
BBC Business Editor

Britain's biggest buy-to-let lender needs to shore up its finances now that the UK economic climate has deteriorated further and a global credit crunch is restricting borrowing for consumers and lenders.

BBC Business Editor Robert Peston said: "Lending remains under pressure because, like all banks, the cost of raising money for Bradford & Bingley remains high.

"It has suffered further charges on its so-called structured finance portfolio, or its foolish investments linked to US sub-prime."

The sluggish economy is also hurting consumers, forcing more people to fall behind with mortgage repayments.

B&B said the percentage of customers who are more than three months behind with payments or who have had their homes repossessed had risen from 1.63% to 2.16% over the past four months.

This is far worse than the industry average of just 1.1% in the second half of last year.

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Buy-to-let landlord Fergus Wilson gives his advice

The buy-to-let market - which accounts for 60% of the group's total lending - has proved particularly tricky.

Cash call

The call for cash from investors is something of a U-turn for B&B after it denied reports earlier this year that it was planning to raise funds through a rights issue.

It's raising capital from the private market which is much better than running to the government like Northern Rock
Vince Cable
Liberal Democrat Treasury spokesman

Shareholders will now be offered shares at 55p rather than 82p under initial plans outlined several weeks ago.

"B&B is now asking less of existing shareholders in terms of a right issue," said Richard Hunter, an analyst at Hargreaves Lansdown.

"The question you have to ask yourself is: if I had 500 to invest, would I invest it in B&B?" he added.

But experts believe B&B's troubles are not as severe as those of Northern Rock and the City watchdog, the Financial Services Authority, has said B&B's shareholders, not its savers, will feel the pain.

Liberal Democrat Treasury spokesman Vince Cable told the BBC: "It is raising capital from the private market which is much better than running to the government like Northern Rock."

Shares in B&B were briefly suspended before the trading statement was released.

When trading restarted they fell sharply and closed down 24% at 67p. The shares have fallen by more than two-thirds in just the past six months.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

Shares in other lenders fell on fears about the health of mortgage industry. HBOS fell 10% while Alliance & Leicester was down more than 5%.

HBOS shares were hammered despite it issuing a statement saying that its own planned rights issue was fully underwritten and was going to plan.

B&B also confirmed on Monday that its chief executive, Steven Crawshaw, had stepped down due to health problems.

Executive chairman Rod Kent said he understood shareholders' frustration with the lender's current predicament. "This is a disappointing trading update reflecting a more difficult market environment," he said.




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