FSA steps in to prevent collapse of B&B

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by Lin Freestone

The Financial Services Agency has stepped in following the failure of Bradford & Bingley’s (B&B) efforts to raise a £400m rescue package.

Texas Pacific Group, a US private equity firm, had agreed to take a 23% stake in the lender for £179m, but announced it was walking away from the deal late last Thursday. Their decision came after Moody’s, a credit rating agency, announced it was downgrading the long-term debt of B&B.

The Financial Services Agency has set in motion a contingency plan under which B&B’s four big institutional investors give their support to a new £400m rights issue.

The four investors, which between them have a 14% joint stake, are Legal & General, M&G, Standard Life and Insight Investment, the asset manager of HBOS. It is anticipated that their backing for the selling of shares in a rights issue will save B&B from collapse.

The UK Shareholders Association, the influential shareholder group, has said it intends to recommend the latest rescue package to the small shareholders who own approximately 40% of the shares. When the Bradford & Bingley Building Society demutualised in 2000, a million of the bank’s customers were issued with 250 shares each.

However, the long-term future of B&B remains in doubt, and depends to a large extent upon the state of the housing market over the coming weeks.