BRADFORD & Bingley's woes deepened yesterday after a body representing many of Britain's largest institutional investors issued a stinging attack on the bank's cash-raising plan.
The Association of British Insurers placed an "amber alert" on B&B's proposed sale of a 23 per cent stake to American buy-out firm TPG Capital, saying it contained breaches of "fundamental principles of sound governance, which are unacceptable to sha
reholders".
Earlier this month, B&B announced that TPG was acquiring the stake in the company for £179 million, as part of a revised £437m cash-raising scheme.
The bank unveiled the funding package to shore-up finances after being hit by turmoil in the housing and financial markets, as it also unveiled a shock £8m pre-tax loss in the first four months of 2008.
The ABI's concerns reflect TPG's right to acquire a major stake in B&B on terms not available to other shareholders. Typically, a new investor would pay a premium for such a substantial stake.
Peter Montagnon, the ABI's director of investment affairs, said TPG was being afforded preferential treatment "both in terms of protection against dilution and the opportunity to participate in future fundraising on preferential terms.
"This imposes a substantial transfer of value from existing shareholders to TPG, while the fact that the rights issue cannot proceed without simultaneous agreement to the TPG deal limits the ability of shareholders to exercise their right of judgment."
Montagnon urged shareholders to think carefully before approving the proposal and should only do so "on the clear understanding the breach of fundamental protections is not a precedent".
The ABI said such was the severity of its concerns that it would have issued a rare red alert – signalling grave concerns – was it not for the "exceptional circumstances facing the company".
An amber alert recommends members make a "considered judgment" before approving a plan. The ABI never formally advises members on how to vote. The ABI's membership owns about a sixth of all investments traded on the London Stock Exchange.
B&B declined to comment on the development. It has been coming under increasing pressure from shareholders to open its books to Resolution, which has proposed a cash injection of its own as a precursor to a bid to mop up many of Britain's smaller banks and lenders.
Last night, Resolution claimed shareholders representing about 25 per cent of Bradford & Bingley had contacted it in support of its bid to be granted access to the books to conduct due diligence.
It has also gained the support of the UK Shareholders Association, which represents the interests of thousands of retail investors.
A spokesman for the association said Resolution's proposals "should be seriously considered by Bradford & Bingley and that Resolution should be given access to financial information to enable them to firm up their proposal."
Resolution claims that it was approached by B&B's major shareholders to come up with an alternative plan.
A spokesman for Resolution, which has built up a stake of 2.9 per cent of B&B, said the company was "quietly confident" it would gain access to B&B's books, with talks continuing.
The group, led by Clive Cowdery, is working on a formal proposal to put to the mortgage lender's shareholders before its vote on the TPG proposal on 8 July. It has said it would spend up to £2 billion on acquisitions in the sector, after identifying "in excess of 15" possible targets.
The full article contains 584 words and appears in The Scotsman newspaper.
