B&B accused of bailing out underwriters at expense of shareholders

Bradford & Bingley's chairman has owned up to a series of failings as he defended the slashing of the bank's rights issue price and a profits warning.

Rod Kent, who has taken over the job of chief executive after the sudden departure of Steven Crawshaw, admitted that the bank had made too many errors as analysts questioned him on the reasons for the bank's sudden change of guidance. He said B&B needed to overhaul its systems for transmitting financial information and communications.

The former building society slashed the price of its rights issue to 55p a share from 82p announced just over two weeks ago and blamed the worsening trading outlook and financial stock market valuations. The bank also announced the sale of a 23 per cent stake to TPG, the private equity firm, for £179m, priced at 55p a share.

Mr Kent said the rights issue would have been "under water" at the previous level because many of the bank's 950,000 small shareholders would not have taken up the rights. The capital raising was fully underwritten by UBS and Citi.

"It is not clear to me why you are bailing out the underwriters at the expense of shareholders," Tim Sykes, an analyst at Execution, told Mr Kent. James Eden, of Exane, said the change "beggars belief" and that the underwriters should have been forced to buy the shares at 82p and sell them at 55p.

The announcement was the latest instalment in the confused saga of the bank's capital plans. It denied reports last month that it was considering a capital raising and then announced a £300m cash call less than a month later. The bank is now raising £400m including the TPG investment.

B&B said it had suffered a pre-tax loss in the first four months of the year as margins were squeezed and mortgage defaults rose.

B&B shares fell 24 per cent to an all-time low of 67p. The news hit other banks, with HBOS registering the biggest fall in the FTSE 100, dropping 10 per cent. HBOS and Royal Bank of Scotland, which have also announced capital raisings, issued statements saying they were trading in line with earlier guidance.

Bad debts for the first four months of the year jumped to £36m at B&B compared with £23m for the whole of 2007. Mortgage accounts three months in arrears rose to 2.16 per cent of the bank's book from 1.63 per cent at the end of last year. The bank was also hit by £15m of fraudulent mortgages.

Mr Kent admitted that the bank had been "over-optimistic and not realistic enough". The business had deteriorated in April but the board had only received the figures at the end of May, he added. "We are used to a less dynamic environment than we have seen in the past few months and days," said Mr Kent, promising a new "realism and a real sense of urgency".

Mr Crawshaw, who has been diagnosed with angina, is "seriously unwell", he added. But he added that he now had the chance to attract a "tip-top" chief executive. If his contract had been terminated, Mr Crawshaw would have been entitled to a pay-off of £640,000, plus a £1.5m pension pot and long-term share incentives. It is understood that the pay-off is subject to negotiation, indicating that the 47-year-old's departure is not entirely voluntary.