Bradford & Bingley resuscitated by speculation

10 July 2008 / by Rebecca Sargent
Bradford & Bingley's shares rose by more than 25 per cent last night, the first piece of good news the lender has had to report in the last two months.

Its shares rose from a low of 33p yesterday morning to a closing value of 43.25p, the fastest rise the lenders' shares have seen in years. It is thought that the recovery is down to speculation that the buy-to-let mortgage specialist could soon be owned by one of the UK's leading six high street banks.

However, despite the rise, which continued this morning, the shares are yet to hit the 55p rights issue price that could soon result in the lenders' underwriters picking up the pieces.

The £400million rights issue is currently underwritten by Citi and UBS, but due to the risk involved, sub-underwriters have been called in to take some of the potential blow. Fortunately for Bradford & Bingley, a number of banks have reportedly agreed to share the possible burden, including HBOS, Abbey, Lloyds TSB, Royal Bank of Scotland, HSBC and Barclays.

However, the fact that Bradford & Bingley specialises in the buy-to-let mortgage market could scupper any plans of a bail out as this is seen as the riskier end of the mortgage market. The current housing market does not bode well for the buy-to-let category as it is at most risk in the event of a property crash.

The Financial Services Authority (FSA) is reportedly behind the move from the UK's big six banks to step in and help Bradford & Bingley. It has been reported that the FSA is desperate to avoid a repeat of the Northern Rock disaster and has pressured the banks into the deal.

Bradford & Bingley share holders are currently on the hunt for a new chief executive in the hopes this will accelerate the lenders' full recovery. Alliance & Leicester yesterday announced the appointment of Alan Gillespie as chairman, a move that has seen the lenders' share price shoot up, despite recent rumours that it could be in the same boat as Bradford & Bingley.

Consequently, the news bodes well for the future of Bradford & Bingley, providing it either finds a new executive or a willing buyer.

© Fair Investment Company Ltd