Jeremy Warner's Outlook: Resolution's Cowdery has a neat solution for Bradford & Bingley, but will it really fly?

B&B is a perfectly good business, but it doesn't have the luxury of dispensing with the bird in the hand offered by Texas
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The Independent Online

It won't be just Texas Pacific that is cursing Clive Cowdery's intervention in the Bradford & Bingley recapitalisation. The Bank of England and Financial Services Authority will be none too happy about it either.

Texas Pacific may be anathema to many of B&B's leading shareholders, but at least its proposed capital injection promised certainty for a mortgage bank which after a series of bungles and mishaps threatened to go the same way as Northern Rock. Now along comes Mr Cowdery to throw the whole thing back in the melting pot.

Mr Cowdery's Resolution claims to have the backing of Legal & General, Prudential, Standard Life and Insight (the fund management arm of HBOS), in proposing an alternative £400m capital injection. These five organisations would underwrite the new capital – equal to 49 per cent of the company – at 72p a share.

This is quite a bit higher than the 55p a share Texas Pacific is paying for a 23 per cent stake, so on the face of it would seem a rather better deal for existing shareholders, many of whom believe that Texas would be getting a steal under the terms of the deal as proposed. The position of Goldman Sachs as adviser to both Bradford & Bingley and Texas Pacific makes them doubly suspicious of a private equity stitch-up.

Mr Cowdery believes Bradford & Bingley offers the prospect of repeating what he achieved with Resolution in the life assurance sector. Industries in turmoil are almost always ripe with opportunity for consolidation.

Resolution made its backers a huge amount of money by playing this game in the insurance meltdown that followed 9/11. Bradford & Bingley would provide the cornerstone for pulling off a similar trick in banking among smaller lenders and deposit takers. Few of the smaller building societies are expected to survive the current implosion, and there are already countless mortgage books going begging.

Yet to be a viable alternative to Texas Pacific, Mr Cowdery has to have a firm alternative proposal up and running in time for the shareholders' vote in two weeks' time. Underneath it all, B&B is still a perfectly good business, but such is the climate of the times that it doesn't have the luxury of dispensing with the bird in the hand offered by Texas for the still uncertain two in the bush proposed by Mr Cowdery. Show us the money.