Bradford & Bingley's future left hanging in the balance

08 July 2008 / by Rebecca Sargent
Bradford & Bingley's shares have all but collapsed as its future is left hanging in the balance. Shares that in May 2008 stood at around 158p each are today valued at around 33p, down 9p from last nights closing price of 42p.

Following last minute jitters from TPG, buy-to-let mortgage specialist, Bradford & Bingley has been forced to issue yet another revised cash call as its future remains uncertain.

This is just the latest news in a string of controversy that has circled Bradford & Bingley ever since it first denied its need to raise cash through a rights issue in May.

Two months on and the bank has been forced to amend its 'cautionary' rights issue three times amidst outrage and uproar from shareholders. Its first proposal asked for 82p per share from investors, which was soon overturned as shares in the bank began to fall.

Consequently, Bradford & Bingley opted for an alternative deal that offered Texas Pacific Group a 23 per cent stake in the company and shareholders a further reduced price of 55p per share. However, this move was seen to revoke shareholders' rights to first refusal of shares and stirred upset amongst key players who were keen to rock the boat.

In a stark contrast, turn to today and TPG is no longer in the running, but shareholders are not as pleased as previously thought. The move from TPG came in the light of B&B's credit rating being downgraded by rating agency Moody's, and experts now believe that B&B will struggle to gain adequate backing for the revised rights issue at the deciding meeting on July 17. As a result, the bank's shares are beginning to suffer as a black, Northern Rock shaped cloud hangs over the lender.

As it stands, the proposed rights issue is underwritten by Citi and UBS, who could be left to clear up the mess. However, it has been reported that sub-underwriting by Legal & General and M&G could bring Citi and UBS' combined net exposure to just £100million, compared with the total proposed £400million cash call, with an additional £55million to be raised in fees.

And, as the rights issue is fully underwritten, rumours are circulating in the City suggesting that investors will not be taking up their rights. And, unless the bank's shares recover, it is unlikely many shareholders will buy shares worth 33p for 55p.

© Fair Investment Company Ltd