Private Investor: B&B 'lifeboat' tows my punt to safer water
Saturday 05 July 2008
Just when I thought the worst for the banks was over, the news comes through that Bradford & Bingley has lost another investor. That's twice the rescue rights issue has failed. To borrow from an old Bradford & Bingley advertising campaign and the even more venerable Oscar Wilde, "To lose one rights issue, Mr Bradford and Mr Bingley, may be regarded as a misfortune; to lose both looks like carelessness." I felt a little queasy.
When the developments became public on Thursday night I really was pretty worried for my small punt in the mortgage bank. A few weeks ago, in the wake of the collapse of the first recapitalisation, I had made the brave decision, so I believed, of buying at 64p, just about the bottom of the market in B&B shares.
The shares then recovered, on the back of the interest in the company from Texas Pacific Group, to above the 70p mark, where I was reasonably happy. When they advanced some more, maybe I should have sold, but things seemed fairly secure. The worst, maybe, was over for our banks.
That was before Moody's, the credit-rating agency, decided to beat Bradford & Bingley up with a debt downgrade. That, in turn, gave Texas Pacific cause and reason to get out of the deal. TPG and its £400m walked away from our beleaguered friends in the North. That was the gist of the news I heard on Thursday evening, and I truly feared the worst. Like Northern Rock, the news had been leaked to the BBC at the worst possible time for a vulnerable bank, with potentially devastating consequences. I would hope that the stentorian Treasury Select Committee might turn its attention to what has been a side issue – the leaks about the Rock and B&B.
What was going to happen next? The playbook was firmly in everyone's minds from the Northern Rock debacle. There would be a run on Bradford & Bingley, the shares would collapse, there would be the usual confusion from the "tripartite authorities" – the Financial Services Authority, the Bank of England and the Treasury – about who was in charge and what they should do.
There'd be general chaos surrounding the guarantee to investors and whether the state might back it up; there would no clarity on whether the bank might be nationalised; Richard Branson would pop up somewhere in a bowler hat making encouraging noises about buying B&B to expand the Virgin empire, and the usual suspects from the world of private equity would be sniffing around the corpse. In the end, Alistair Darling would end up on his hind legs in the House of Commons announcing another "temporary" nationalisation of a bank. The Barclays and HBOS rights issues would fail and most of the top people in the regulatory/supervisory world would tender their resignations. Oh, and I'd lose my stake in the bank.
But that, so far, anyway, isn't what has happened. Someone at the FSA wasn't asleep at the wheel, perhaps. Someone, maybe, at the Bank of England could see what was coming.
Whoever it was who managed to construct the "lifeboat" of institutional investors that saved Bradford & Bingley deserves the thanks of a grateful nation. I am certainly impressed.
This, like 1940 for the RAF, may have been the FSA's finest hour: "Never in the field of human finance was so much owed by so many to so few."
As it is, the worst that has happened is that the shares are down to about 55p and thus represent a reasonable punt for some future value in the broad, sunlit uplands (also Churchill's phrase, by the way). The only flaw, in the end, was the way the news was managed.
Which brings me to Barclays. In my inside jacket pocket, I have a form by which I agree to subscribe for my maximum entitlement in the open offer. I was ready to post it the other day when I glanced at the Barclays share price and noticed that the market price had slipped below the open offer price (282p).
Since then, it's recovered, but you can never be quite sure for how long. Basically, it's bobbing around the offer price mark, and it does make you wonder whether it's worth taking on the shares. I just hope that someone doesn't leak a nasty story about Bar-clays to the BBC on Thursday night.
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