Banks set to own a quarter of B&B as shares slip further

Published on Tuesday 8 July 2008 21:50

BRITAIN'S major banks could be left holding more than a quarter of beleaguered mortgage lender Bradford & Bingley after its shares plunged farther below the value at which it is aiming to raise cash.

B&B is attempting to shore up its balance sheet through a 400 million rights issue, offering shareholders the right to buy shares at 55p each.

But hammered by a wave of negative headlines and claims by analysts that shares may be worth nothing in the longer term, B&B last night fell 8p or 19 per cent to 34p.

The rights issue appears likely to succeed, with UBS and Citigroup acting as underwriters.

It is understood that six of Britain's banks, including Royal Bank of Scotland and HBOS, have agreed to act as sub-underwriters for the cash-raising, promising to take up options turned down by existing shareholders.

Yesterday, sources said the banks had pledged to take up most of the shares on offer in a bid to prevent another failure in the banking system, after the nationalisation of Northern Rock.

B&B's plans to raise cash were thrown into turmoil last week when Texas-based TPG pulled out of plans to invest 179m into the bank, citing a ratings downgrade.

There were reports that B&B's huge retail investor base was a major factor behind the most recent falls. Almost 40 per cent of the company's shares are held by retail investors, including hundreds of thousands who were awarded 200 "free" shares when the former building society demutualised in 2000.

While retail investors are typically less likely to take up options in a rights issue, some financial advisers are recommending they sell the shares.

Sentiment was also hit by negative comments from the City. On Monday, stockbroker Pali International cut its target price on the shares to 0p.

Yesterday, business commentator David Buik of BGC Partners said the third attempt at the rights issue "looks like a dog's breakfast", and called for a "white knight" to buy the bank.

"Though depositors' funds are safe, and in no way can this bank's problems be seen as a replication of Northern Rock, we can only hope that the management of this beleaguered mortgage lender and its advisers have plan B in place," Buik said.

Resolution attempted to gain access to B&B's books as part of a plan backed by some of the lender's largest shareholders, but was twice rejected, and has since indicated it is unlikely to return.

Meanwhile, there was news of an unexpected possible bidder, with Skipton Building Society confirming that before TPG announced plans to invest, it had considered bidding for B&B, in a deal that would have taken the bank back into mutual ownership. However, Skipton, Britain's sixth-largest building society, said yesterday that it was no longer interested.