US firm buys up stake in Bradford & Bingley

Published on Monday 2 June 2008 10:44

TROUBLED buy-to-let lending specialist Bradford & Bingley today issued a profits warning as it confirmed that a US private equity firm is to buy a one-fifth stake.

B&B, whose chief executive Steven Crawshaw resigned yesterday for health reasons, said underlying profits in the first four months of the year were at 56 million, compared to 108m in the same period last year.

It also announced that Texas Pacific Group (TPG), one of the world's biggest buy-out groups, is to purchase a 23 per cent stake.

The company also scaled back its recently-announced rights issue, with shareholders now being asked to raise 42m less at 258m.

B&B has been one of the UK lenders hardest hit by the credit crunch. Its exposure to the buy-to-let market is seen as a reason for its financial difficulties.

The firm said that Mr Crawshaw stepped down as a result of "serious illness", which is understood to be a cardiovascular condition. It is thought he has been suffering from angina attacks in recent weeks.

Analysts believe that his departure leaves the firm increasingly vulnerable as a potential takeover target.

Rod Kent, who today became B&B's executive chairman, said: "The last few weeks have been challenging for Bradford & Bingley, and this is a disappointing trading update reflecting a more difficult market environment.

"I understand shareholders' disappointment. Nevertheless, I am delighted to welcome TPG as a major strategic investor in Bradford & Bingley. With a strengthened capital base and the skills that TPG will bring I am sure we can develop the business to exploit the opportunities available in our markets in the medium term."

Matthias Calice, a partner at TPG said: "Bradford & Bingley has a longstanding established franchise in the UK specialist lending market.

"We believe that the company's superior market position, coupled with this injection of capital provides the platform for potential growth and profitability."

Seven Investment Management analyst Justin Urquhart Stewart said: "This move doesn't surprise me at all. The mortgage market is down, buy-to-let has fallen apart, the share price has collapsed and they still have a reasonable asset base – they are open to finding a strategic partner."

He predicted a takeover move could swiftly follow, with the shares buy-out serving as warning to other potential suitors.

He said: "It is a suitable blocking action. It is a way of marking their territory – any good private equity firm is like a wildcat."