Page last updated at 20:49 GMT, Friday, 4 July 2008 21:49 UK

UK investors rescue B&B cash call

Declan Curry assesses the situation with Justin Urquhart-Stewart

Bradford & Bingley has confirmed that its plan to raise 400m has been rescued by a group of UK investors.

B&B's plans were put into doubt after US private equity firm Texas Pacific Group (TPG) walked out on a deal to pay 179m for a 23% stake in the UK lender.

The mortgage lender will now sell 400m of shares in a rights issue, which is supported by Legal & General, Standard Life, M&G and Insight Investment.

B&B shares fell more than 18%, dipping below the rights issue price level.

A rights issue is when a company offers shares at a discount to existing investors, giving them the opportunity to increase their holdings and raise money for the company to use to shore up its balance sheet.

B&B is offering investors its new stock at a price of 55 pence per share.

This was a significant discount to its share price on 13 May when it closed at 158.8p.

But by the close of Friday trade, B&B shares dropped to 50p, down 11p.

Nerves

B&B, one of the UK's largest buy-to-let mortgage lenders, is looking to raise money because the group has been hit by the credit crisis and the sharp downturn in the property market.

BBC business editor Robert Peston
It would have been disastrous for confidence in the bank if new money was not found to replace TPG
Robert Peston
BBC Business Editor

TPG walked away from its deal to buy the stake in B&B after Moody's, the credit rating agency, announced it was downgrading the long-term debt of the UK mortgage lender.

This left B&B with a multi-million pound hole in its plans to raise cash.

BBC Business editor Robert Peston said the City watchdog, the Financial Services Authority, played a central role in helping to organise what will be seen as an emergency fund-raising.

"It would have been disastrous for confidence in the bank if new money was not found to replace TPG," he said.

Positive move?

To fill the funding gap, B&B decided to increase its rights issue from 258m to 400m, and got the backing of Legal & General, Standard Life, M&G and Insight Investment.

Bradford & Bingley branch

The group of companies helping rescue B&B are the firm's largest shareholders. They were also the backers of a plan by Clive Cowdery, head of investment group Resolution, to acquire a controlling stake in B&B. However, B&B rejected Mr Cowdery's plan last week.

Many analysts welcomed the new capital raising plan, taking the view that UK investors have more of an interest to shore up the British banking system, while TPG was motivated more by self-interest.

The original plan had also been criticised because TPG was offered a lower price for B&B shares than other shareholders.

David Buik at BGC Partners said: "It's just as well TPG have actually pulled out of the deal because otherwise I think the extraordinary general meeting could have been an extremely stormy affair because I think shareholders have felt they have been treated shabbily."

'Substantial deterioration'

B&B said the rights issue would be underwritten by the investment banks, Citigroup and UBS.

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

The firm's executive chairman Rod Kent said: "B&B continues to be well funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK."

The new plans should be of great comfort to B&B's depositors and creditors, the BBC's business editor said.

But he pointed out that Moody's announcement of its downgrade to B&B's credit rating made for pretty dismal reading.

The statement talks of a "substantial deterioration in the bank's asset quality" and warns that arrears will worsen on its buy-to-let mortgages in coming months.


SEE ALSO
Bradford & Bingley chief resigns
01 Jun 08 |  Business
B&B seeks 300m from shareholders
14 May 08 |  Business

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