B&B faces uncertain future after getting its rights issue away

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The Independent Online

Bradford & Bingley, whose accident-prone rights issue finally closed yesterday with a better than expected take-up, will get its £400m capital boost, but the mortgage lender still faces a precarious future.

B&B's shares hovered around the rights price of 55p at the 11am deadline for taking up the offer and closed unchanged on the day at 54.75p.

Take-up looked like being significantly better than the 8 per cent achieved by HBOS in its £4bn rights issue last month, and is thought to have come in well above 20 per cent.

Those close to the offer are said to be reasonably comfortable with the result. B&B is due to announce the take-up of the rights issue on Monday.

Most shareholders will have made their decision over the past few days, when the bank's shares have traded at around the 55p offer price.

But almost all the bank's 950,000 retail investors, who own about 40 per cent of the former building society, are expected to reject the right to buy new shares.

Citi and UBS have fully underwritten the offer after renegotiating terms because B&B gave them out-of-date information about the performance of its loans. The share sale is supported by four top shareholders who have sub-underwritten about £145m of the total.

Six UK clearing banks have also agreed to back the underwriters and could be left with up to a fifth of the enlarged share base.

But securing the extra capital will not signal an end to B&B's problems.

James Hamilton, banking analyst at Numis, said: "It will be business as usual, but unfortunately business as usual is not going to be very good."

The bank has concentrated on untested buy-to-let and self-certified mortgages, and is committed to buy many billions of pounds of mortgages originated by GMAC, the US lender. The bank revealed in June that the GMAC loans had performed worse than B&B's own assets despite its protestations that underwriting standards at GMAC were the same as its own.

Wholesale funding, for which B&B relies on for nearly half its lending, is more expensive and scarce, house prices are falling, and its specialist mortgages could suffer more than the average in a downturn.

With the rights issue over, Rod Kent, the chairman, is expected to redouble efforts to find a buyer for B&B.

Alliance & Leicester has agreed to sell out to Santander of Spain, because as a small lender with a focus on the troubled mortgage market it was too exposed to volatile sentiment. B&B is smaller and even more exposed to risky mortgage business.

But with house prices falling fast and the economy slowing sharply, it would be a brave buyer who took on B&B's risky assets in the near future.

Alex Potter, banking analyst at Collins Stewart, said that although B&B is trading at half its book value that might not be enough to tempt a buyer.

"I kind of wonder why you would want to bid. You don't get a big, credible branch network, major processing capability or a particularly powerful brand name," he said.