'Don't panic' plea from worried Scottish giants after B&B crisis

Bradford & Bingley's shock losses and rights issue rethink helped to wipe £4bn off UK bank shares

ROYAL Bank of Scotland and HBOS issued what amounted to "don't panic" pleas over their 12 billion and 4bn respective rights issues yesterday following the crisis which engulfed rival Bradford & Bingley.

More than 4bn was slashed from banking shares at one stage yesterday as B&B, a major player in the buy-to-let (BTL) mortgage market, announced a surprise redrawing of its own 300 million cash call on shareholders.

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It also revealed 8m of losses in the first four months of 2008, compared with a 107m profit in the same period last year, which the under-pressure bank blamed on mortgage condition continuing to worsen.

B&B's action shocked the market and prompted both RBS and HBOS to clarify their own rights issue positions.

In a brief statement, RBS said: "In response to inquiries received, RBS notes that UK buy-to-let mortgages are only 1 per cent of RBS's UK loan portfolio."

Roughly 60 per cent of B&B's mortgage book is in BTL, sometimes seen as a riskier sector in downturns.

RBS also said that its trading guidance released on 22 April, just before the rights issue was announced, "remained appropriate".

HBOS, the Bank of Scotland/Halifax group, said that its rights issue was "proceeding according to plan". It added that trading remained "satisfactory".

HBOS said later that 26.8 per cent of its mortgage book was attributable to "specialist balances", mainly buy-to-let and self-certification mortgages.

RBS weathered the initial storm, but despite the reassurances, HBOS shares were badly hit, losing 10 per cent, or 40p, to 360p. The Edinburgh-based bank is issuing new shares at 275p.

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Simon Willis, a banking analyst at NCB Stockbrokers, said: "The most obvious read-across from Bradford & Bingley was HBOS, because it is the second biggest player in buy-to-let.

"The question has already been around as to whether the 4bn being raised by HBOS is enough, and B&B's problems will make that question more pertinent."

RBS's shares closed down 1 per cent, or 2.5p, at 226p, compared with a rights issue price of 200p.

B&B, meanwhile, saw its shares slashed 24 per cent to 67p, wiping another 130m off its already depressed stock market valuation to leave it at 407m.

B&B shook the market when it said US private equity firm TPG Capital had agreed to take a 23 per cent stake in the bank in return for 179m.

It revealed it was scaling back its rights issue as a result to 258m, or 55p a share, compared with an earlier price of 82p. B&B also confirmed chief executive Steven Crawshaw was retiring through ill-health.

buy-to-let fears, page 31