Bradford & Bingley latest bank to be bailed out as Barclays stays afloat

15 May 2008 / by Rebecca Sargent
Buy-to-let mortgage specialist, Bradford and Bingley has become the third bank to make a cash call to its investors in the last month.

The bank issued a rights issue of £300million yesterday, just four weeks after assuring shareholders it was in a strong position. Consequently it has been widely reported that B&B shareholders are concerned about the trustworthiness of the bank and its chief executive, Steven Crawshaw.

This news follows reports that RBS shareholders have given its record breaking £12billion rights issue the go ahead. In comparison, B&B's £300million call for cash may seem insignificant but it is a third of the banks £900million market value.

Bradford & Bingley will offer shareholders the chance to buy 16 new shares for every existing 25 shares at a cut price of 82p each. The banks shares closed at an all time low of 144p last night, down by 14.75p. The shares have fallen by 70 per cent in the last 12 months.

Defending the banks actions, Mr Crawshaw said yesterday: "The rights issue we have announced today will strengthen our financial standing, reinforcing our position as one of the better capitalised banks in the UK. The improved financial strength will ensure we are even better placed to pursue our strategy of providing high quality savings and mortgage products in a competitive market."

Commenting on the news, Nick Raynor, investment advisor at The Share Centre, said: "Although the offer is fully underwritten we are still concerned about their exposure to the buy-to-let mortgage market. B&B is among those worst hit by the credit crunch, having traditionally taken a higher proportion of its funding from wholesale money markets as opposed to individual savers. As a result its share price has already fallen sharply this year.

"We are asking investors to consider how much of a long term premium there is to be had from the rights issue, considering the company is not looking to raise a huge amount of money here and given that we are still awaiting further news on a hinted £82million write down." He added.

As Bradford & Bingley faces its shareholders, Barclays has surprised experts by continuing to put off its own rights issue which has been rumoured for the last month, despite announcing further write downs of £1billion.

Banks are currently under pressure from regulators and shareholders to boost their balance sheets in order to protect themselves in the case of a recession. Barclays' capital position is currently one of the lowest amongst leading banks at just five per cent, causing speculation about the bank's stability.

As a result of rights issues and unexpected write downs, consumers are becoming increasingly concerned about their bank's well being. According to one in seven Brits needs convincing that their bank will not go bust.

©Fair Investment Company Ltd