BRADFORD & Bingley plunged well below its rights issue price yesterday after the financial services watchdog was forced to oversee the formation of a new rescue plan.
Texas Pacific Group (TPG), the US buyout firm which had agreed to inject £179 million in return for a 23 per cent stake, pulled out late on Thursday night, forcing the Financial Services Authority (FSA) to intervene to prevent panic among customers s
imilar to the Northern Rock collapse.
B&B shares plunged 18 per cent to 50p, below the 55p level at which the company had been planning to raise new shares.
TPG's withdrawal was prompted when rating's agency Moody's indicated it was set to downgrade B&B's credit rating for the second time in five weeks, citing deteriorating economic conditions. B&B now plans to revert to its initial plan, raising £400m through a rights issue, although details of how the cash call would work have not yet been released.
Shareholders had been due to vote on the TPG investment and rights issue plan on Monday, but the bank said the meeting would be adjourned, probably until the week starting 14 July.
Standard Life, Legal & General, Prudential and Insight, part of Edinburgh-based HBOS, have all indicated they will support the plan.
The same shareholders were behind an alternative proposal last month which would have seen Resolution inject cash into the bank and carry out a plan to consolidate the UK's smaller banks. But B&B flatly refused to allow Resolution access to its books to conduct due diligence, prompting the rival plan to collapse.
Resolution's chairman Clive Cowdrey has said it may return to the table for further discussions, although sources said yesterday that another rescue plan for B&B was now unlikely.
Citi and UBS have once again agreed to underwrite the rights issue and could face being left holding a large chunk of capital. Around 40 per cent of B&B's shares are held by retail investors, who are generally less likely to take up the options, especially with shares around the current market price at a time of falling consumer sentiment and rising household bills.
B&B is Britain's biggest buy-to-let lender and has seen losses on bad debts rise as house prices fall and the economy stutters.
Leigh Goodwin, an analyst at Fox-Pitt Kelton, warned the bank could be losing money by as early as next year.
"Bad debts on the mortgage side are going up and funding costs are also going to go up now," he said.
The full article contains 431 words and appears in The Scotsman newspaper.
