Bradford & Bingley rescued from the brink of collapse

Permalink: Bradford & Bingley rescued from the brink of collapse
by Gill Montia

Bradford & Bingley (B&B), the UK’s leading buy-to-let lender, is being rescued by its leading shareholders.

After several torrid weeks during which the bank launched a rights issue aimed at raising £400 million, major shareholders Legal & General, Standard Life, M&G and Insight Investment are reported to be willing to subscribe to the fundraising to the tune of £150 million, in total.

Yesterday, B&B’s share price fell to 34p, well below the 55p rights offer price and almost 90% below the July 2007 value.

Fears of a rerun of Northern Rock’s collapse rendered the bank’s equity virtually worthless but the consequences for the UK financial sector of B&B’s demise would be so severe that investors such as Legal & General and Standard Life would be damaged by the wider fall out.

The fundraising is being underwritten by UBS and Citigroup and six High Street banks have agreed to act as sub-underwriters.

HSBC, Lloyds TSB, HBOS, Barclays, Royal Bank of Scotland and Abbey, have guaranteed to subscribe a further £150 million in total, taking a proportion of any shares left with UBS and Citigroup.

In the four months to the end of April, B&B posted a pre-tax loss of £8 million, compared with pre-tax profit of £107 million in the same period of 2007.

At that time, the bank reported that its level of arrears had risen from 1.63% to 2.16% and that it expected the trend to continue.

Around £24 billion of the lender’s total mortgage book of £40 billion relates to buy-to-let mortgages.