B&B shares hit after funds plan rescued

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The Independent Online

Bradford & Bingley's shares fell more than eight per cent today after major shareholders rescued the lender's £400 million funding plan. This came after a US private equity firm walked away from the deal.

Texas Pacific Group, which was due to buy 23 per cent of the company as part of a wider funding package, announced last night it was withdrawing its £179 million cash injection after the lender's investment status was downgraded by a ratings agency.

But B&B said a group of its largest shareholders including M&G Investment Managers, Legal & General Investment Management, Insight Investment and Standard Life Investments were now backing the deal.

The bank, which has been badly hit by the credit crunch, is raising the money to help shore up its finances.

TPG's cash had been lined up alongside a deeply discounted rights issue - a call on existing shareholders for cash - which would have raised another £258 million.

B&B said it was proceeding with its capital plans through a bigger rights issue, which would raise £400 million after fees. This is being underwritten by banks Citi and UBS.

The lender said TPG's withdrawal came after ratings agency Moody's downgraded its unsecured and long-term debt ratings, which effectively tells the market that the firm is a greater investment risk.

B&B's executive chairman Rod Kent said: "Whilst we are disappointed that TPG intends to terminate its subscription agreement, I am pleased that Citi and UBS and our major shareholders continue to support our proposed capital issuance.

"Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK."

The funding plan involving TPG had attracted a raft of criticism from investor groups.

The Association of British Insurers (ABI) branded it "unacceptable" because it removed the right of pre-emption for shareholders - in which new shares should be offered to existing shareholders in proportion to their existing holdings.

This is the third time B&B has had to change its funding plans.

In May the lender, which specialises in the buy-to-let mortgage market, first announced a £300 million rights issue to help shore up its balance sheet.

Then last month B&B announced it was bringing TPG on board, and reducing the size of the rights issue to £258 million.

A rival funding bid led by investment group Resolution, involving the injection of £400 million by a series of major investors, was rebuffed by B&B last week.

The lender is suffering amid a triple whammy of credit crunch-related write-downs on investments, soaring wholesale borrowing costs and rising numbers of borrowers falling behind with repayments.

It has been particularly vulnerable to the crisis in money markets because it previously raised more than a quarter of its capital through wholesale funds.

B&B unveiled an £8 million pre-tax loss in the first four months of 2008 after arrears climbed sharply.

Around 35 per cent of the company's shares are in the hands of private investors, who have holdings of up to 250 shares. Many of these shareholders are former B&B members who picked up stock when the society demutualised.