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?

s.ogrady@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: A Customer Service Advisor is r...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003