Sean O'Grady: Private Investor

B&B pulls it back from the brink – phew...

Oh, look! Bradford & Bingley is the only one of my recent banking punts to be in the money. At 80p or so I'm up a fifth on the nadir I bought at a few weeks ago, when they seemed all but done for. All the banks had their ups and downs last week, but Alliance & Leicester and Barclays are still underwater, despite some relatively good news from Barclays on their recapitalisation. True, it isn't a proper rights issue which would be fairer all round to shareholders, but it is close enough to one to be acceptable to smaller investors.

Contrast that, though, with the Bradford & Bingley plan. A few weeks ago I think I spoke for many people when I said that shareholders in the bank should accept the 24 per cent stake about to be taken by Texas Pacific Group. This American private equity investor seemed to be the only thing standing between B&B and oblivion.

Well, I've changed my mind about that. Now, with the interest Resolution recently took in the bank, their overtures sadly knocked back by B&B, I wonder whether shareholders in B&B should be all that desperate after all. In fact, I am tending to the view offered by those wise folk at the Association of British Insurers. The ABI says that B&B breached "sound governance" principles because its plan to raise cash favours TPG. As I say, I did think that was a price worth paying when the bank seemed to be on the verge of collapse, but calmer heads should now prevail. After the risible failure of the first rights issue this punk version seemed to make sense in the fevered atmosphere of the time. But times change.

This sort of thing is cropping up quite a lot with the banks at the moment – the rights of existing shareholders, or pre-emption rights. These basic rights of property, enshrined in company law and long convention are being jeopardised because the banks, or rather the banks' managements, are panicking all over the place.

It is the clearest divergence of the well observed separation of the interests of the owners and the managers of a company. The managers don't lose anything if they sell great chunks of a firm for next to nothing – and indeed have everything to gain if it helps preserve their jobs and the directors' usually lavish emoluments. However, the people who actually own the institutions – the shareholders – effectively pay a heavy price indeed for such cynical attempts to save the skins of useless boards and executive "teams".

So I am rather glad the ABI sees things my way and has sensibly decided to speak out on the issue.

The B&B plan, as the ABI states, breaches the right of investors to buy new shares in proportion to their existing holdings and gives TPG "preferential treatment" protecting the size of its stake. Peter Montagnon, the group's director of investment affairs, said that the ABI will "urge the regulatory authorities to take additional care in encouraging bank boards not to put themselves in such a position in future. Bradford & Bingley failed to ensure a timely flow of management information that could have prevented the need for this unsatisfactory arrangement." The breaches of governance principles are, he says, "unacceptable".

Indeed they are. So I urge all those small shareholders in this former building society to vote against the plans on July 7. It might, just might, prove a turning point in corporate affairs, and need not damage the bank's ability to recapitalise.

As I wrote last week, it is up to bodies such as the London Stock Exchange, the UK Shareholders Association, the British Bankers Association and the Financial Services Authority to tell our great banking groups that they are not allowed to shaft existing shareholders, no matter how dire their situation.

If it really is that dire, then new legislation will soon mean that the bank of England will be able to ease them into a special regime where they can be hospitalised and, in some sense, perhaps even saved.

By the way, I see the builders are down yet again this week, a very unhappy sight, and I'm glad I avoided them. Credit Suisse put out a note that spread depression everywhere, but in truth we can all see what's happening to the housing market. On the construction side it's much worse for builders than in the 1990 to 1992 slump. Who can save them?

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Barn owls are among species that could be affected
charity appeal
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas