ABI warns B&B shareholders 'at disadvantage'

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The Independent Online

The Association of British Insurers has attacked Bradford & Bingley for promising anti-dilution rights to Texas Pacific Group, the US private equity fund that is taking a stake in the beleaguered mortgage lender, despite allowing its existing shareholders' holdings to be diluted by the deal.

Peter Montagnon, director of investment affairs at the ABI, added to the growing pressure on B&B's board, saying shareholders should ask pressing questions of the bank's directors.

"The board of B&B has allowed TPG to drive a very hard bargain which is seriously detrimental to the interests of existing shareholders," Mr Montagnon said.

"We will have to examine the background carefully, but this raises some pretty serious questions. The anti-dilution arrangements create a division between TPG compared with other shareholders in the same class, which are at a disadvantage. This conflicts with fundamental principles."

In its circular to shareholders for the bank's proposed £258m rights issue, B&B said TPG would be allowed to participate in any future offer of shares by the company so that the buyout firm can maintain its proposed 23 per cent holding. The bank added if shareholders rejected the transaction terms, neither the rights issue nor the stake sale to TPG would go ahead.

B&B also revealed it was paying huge fees to Citigroup and UBS for the rights issue. The underwriters will receive 1.1875 per cent of the gross amount of the rights issue whether or not it becomes effective. The bank has also agreed to pay the underwriters a further underwriting fee of 3.5625 per cent.

B&B announced a £300m rights issue on 14 May at 82p a share, but was forced to slash the price to 55p on 2 June when it revealed a worsening trading performance. It also brought in TPG to buy shares at the same price to provide a "floor" for the share price. But the TPG investment has infuriated some shareholders because it dilutes their investments.

A B&B spokesman said TPG was a long-term strategic investor and its investment was in the interests of all shareholders. B&B shares fell 7.4 per cent to 66p.