Once more a major British mortgage bank is in trouble, but all things being equal Bradford and Bingley (B&B) will escape the fate of Northern Rock which was bailed out by the Government and then nationalised earlier this year.
The bank is due to detail profits and provide more news on its capital needs in Britain later today, Australian time, but London reports suggest that the US buyout group, TPG, will pump in 150 million pounds ($A330 million) for a 20% shareholding, while a group of London financial institutions could provide a further 250 million pounds ($A550 million).
B&B, Britain’s leading lender to landlords (mostly of flats which have boomed, then sagged in the UK in recent years), revealed at the weekend that its CEO had quit because of a serious health condition, the chairman was stepping in, and that profits would be lower than the already lowered estimates from brokers.
The bank has an emergency 300 million pound ($A660 million) rights issue underway, but it will be bailed out by some powerful new friends because it needs the cash immediately and there were growing fears shareholders (and perhaps the underwriters) might not take up the issue.
And that’s why it and Britain have escaped a repeat of the Northern Rock situation, which would have been devastating to the Bank of England, the financial regulators, the British Labour Government and the country’s banks in general.
At this stage the rights issue is due to go ahead, with a prospectus due this week. The prospectus caused the problems for the bank because it would have to disclose full current accounts and earnings estimates. London reports say B&B will say earnings this year are likely to be “significantly” below analyst expectations.
B&B shocked the British market last month by revealing plans to raise 300 million pounds ($A620 million) in an issue to shareholders. That announcement came only a month after it dismissed a report in the London Telegraph that it was planning an issue to replenish falling capital levels.
Up to Friday B&B shares had lost 67% of their value this year, the worst performance of all Britain’s listed banks.
Its issue was made on the terms of 16 shares for every 25 they own at 82 pence each. The issue was deeply discounted, by the shares have dropped 35 pence since the announcement on 14 May and closed at just over 88p on Friday, which brokers say puts it in the zone where many shareholders will not support it. Citigroup and UBS had underwritten the issue.
The rights issue is likely to be redrafted and repriced and aimed at smaller shareholders and institutions.
The latest reports say TPG and the institutions will be paying between 50p and 60p per share for their new holdings, which effectively means the rights issue is dead.
It will be the second stake TPG has taken in a struggling bank: six weeks ago it snapped up a 20% stake in Washington Mutual, America’s largest remaining savings and loan group which had suffered huge losses from poor subprime lending on homes and investment in associated securities.
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