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Shares in Bradford & Bingley (B&B) plunged 18 per cent to 50p today closing below the 55p level of its revised rights issue fund raising designed to pump £221 million into the ailing buy-to-let mortgage bank.
The slump in the shares followed US private equity group TPG pulling out of a rescue deal under which it would have taken a 23 per cent stake in the bank. That move came just hours after rating agency Moody's downgraded the lender's debt. TPG's withdrawal sparked the need for a fresh rescue plan which came from four of B&Bs biggest shareholders.
Under orchestration of the top financial watchdog, Financial Services Authority, Standard Life, M&G Investment Managers, Legal & General and Insight Investment, which together own 14.25 per cent of B&B, stepped in to fund £179 million as part of a £400 million fund raising deal priced at 55p a share.
But B&B's shares closed off 18.03 per cent, or 11p to 50p as investors took fright over whether the rescue deal is enough to stabalise the lender.
It emerged last night that TPG, had walked after Moody's downgraded the bank's debt to Baa1 - three notches above junk status.
B&B now has the lowest credit rating of any of the big British banks which could potentially make it more costly for it to raise funding in the financial markets.
All four investors that are supporting today's deal had backed an alternative plan to fund the entire £400 million capital raising plan and put Resolution, the investment vehicle run by Clive Cowdrey, in charge of B&B. The four shareholders had objected to TPG taking a stake in the struggling bank.
However, Resolution was forced to pull out of a deal last week, blaming the bank's management and its stubbornness for refusing to open its books to begin due diligence.
B&B and TPG had negotiated a £1.8 million break fee, however this was only payable if the bank accepted a deal with a third party, for example Resolution. Because TPG has walked away, it does not have to pay the fee.
Rod Kent, executive chairman at B&B, said today: "Whilst we are disappointed that TPG intends to terminate its subscription agreement, I am pleased that Citi and UBS [the rights issue’s underwriters] and our major shareholders continue to support our proposed capital issuance.
"Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK."
Shareholders were due to vote on B&B’s rights issue on Monday, however an extraordinary general meeting has now been moved to July 14.
UBS and Citigroup are expected to support the company through a downgrade. The investment banks have already been criticised for threatening to halt their underwriting once, when B&B incurred worse-than-expected mortgage arrears.
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As a small shareholder with an interest in B&B succeeding I am bemused why I havent been asked to support my own investment. It may not make business sense but the little guys could cough up if a good deal was offered and it wouldnt have to be the give away the big boys ask for.
Chris Sullivan, Chelford, UK
If Rod Kent is soon looking for work (and by Jove he should be!), he may perhaps be persuaded to assist my wife and I with our 'credit-crunched' household budgets. Precisely which cardboard box is best to keep out the cold, for example? And can it be snugly insulated with waste B&B paperwork?
Colin Johns, London, UK
The chairman and directors should resign with immediate effect as they are obviously not fit to run B & B.
Douglas W Tott, Bruichladdich, Scotland
good riddance to TPG. I have every confidence in the B&B management and I continue to put my money (both savings receiving good interest and buying shares) where my mouth is. O ye of little faith will see I am well rewarded. Lets all pull together and help genuine buyers get a home.
tony, loughton, essex
As a B+B shareholder I would rather my holdings value fall to zero than there be a government rescue package. Why? It will guarantee the red bracered losers on the board their bonus/golden handshake/pension. Let the free market function. Shareholders who disagree should have bought National Savings.
Eric Skelton, Cardiff, Wales
What a continued mess!.
Mr Darling had better step in NOW, before B&B have completely flushed the company down the tubes.
David Diggins, Derby., England.
I have an e-mail from B & B (not bed and breakfast) assuring me that the banks' future is safe as is my Bond that I hold but that document may not be enough to save my little pot of gold!
Derek Clifton, Andover, Hampshire, England
B+B ? BB+ surely ? Maybe not as good as that...?
charles murchison, Hampton Hill, Middlesex,
The Board refused to open B&B's books to Cowdery - one City type on Radio5 this sunny morn said that 'the City Boys' were wondering what they possibly 'had to hide' - Kent (no typo) & Co. now have their funding...from the same investors...without any due diligence taking place !! Clever stuff !
Alistair Fraser, London, England
Having worked in the arreas collection department of B&B, i can confirm that the whole company from top to bottom is infested with incompetent senior management, who are inacapable of preforming even the most basic functions of management. A new management team is required urgently.
Abid Mahmood, Birmingham, UK
I've known for 5 years that Buy to Let was a disaster waiting to happen. £600 rent on a flat with a mortgage of £800 makes no sense - especially at historically low interest rates.
But they believed what they wanted to believe - that property will always go up and up and up and up. Fools.
Mary Jones, Brightlingsea,
NOW may we have a Vote of Censure on the Executive and Board?
Noel Falconer MEcon, COUIZA, France
Just £179 million deal, to save a bank, how bad must their finances be?
If TPG Capital were not prepared to invest such a small sum, then questions have to be asked.
I would not touch their shares with a barge pole!
Not long to go, I think
Andrew Huddleston, Melton Mowbray, England
And they sit in their yachts in the Med while savers run the risk of inflation robbing them or worse still the total collapse of our economy and total loss of savings.
And our gutless corporate banking controlled does??????
NOTHING!!!
R McAuley, Antrim, United Kingdom
Now will the Police arrest the Kent Gang of Montebancs. They have wrecked the lives of hundreds of thousand of shareholders who believed their lies. We should be able to seize their assets and scrapped all the lucrative payoff packages they gave themselves. Seize the pension of the heart man also
john fulham, liverpool, England
A ratings 'downgrade'? B&B should be sealed in concrete and dropped into the Mariana Trench. At least the water pressure down there would save us more vapourings from a crew that knows its vessel is well and truly sunk. Abandon ship all ye who enter here.
Colin Johns, London, UK
Nice to know UBS and Citi will support B+B. The biggest loser in Europe and one of thebiggest in America. Gives one real confidence doesn't it?
eric campbell, harrogate, uk