Bradford & Bingley shares hit a new all-time low and plunged further below the bank's rights issue price as fears increased about its prospects.
The stock dropped 16 per cent to close at 42p yesterday, far below the 55p price of B&B's third attempted cash call. The shares have lost almost one-third of their value in the last two trading days.
Fox-Pitt Kelton analysts predicted the fast-deteriorating housing market would drive B&B to a loss by 2010 as bad debts on its buy-to-let and self-certified mortgages surge. The bank's battered reputation will also push up the cost of retail funding and make it more difficult to secure finance in the wholesale markets, the analysts said.
B&B has been in turmoil since announcing a £300m cash call and ousting its chief executive on 14 May. After mortgage bad debts jumped, B&B conceded to its underwriters by slashing the price of the cash call on 2 June and bringing in TPG, the private equity firm, as an investor. But a ratings downgrade by Moody's on Thursday prompted TPG to walk away, forcing big institutional investors to prop up the revised £400m capital raising.
The Financial Services Authority has battled to rescue B&B, enlisting four big institutional shareholders to support the rights issue after TPG pulled out. The City watchdog wants to prevent a second banking collapse after the run on Northern Rock forced the bank close to implosion before it was nationalised.
Fox-Pitt Kelton said the rights issue would probably go ahead but that that if it failed, B&B could be taken over, with shareholders receiving little or nothing for their shares.
Moody's said yesterday that the debt downgrade meant B&B would have to provide liquidity support and more collateral to its Aire Valley securitisation vehicle. The bank will also have to pay another financial institution to guarantee or take on B&B's role as counterparty to interest rate swaps with Aire Valley's funding companies.
B&B was due to hold a shareholder meeting yesterday to approve the rights issue and TPG's stake. The meeting to approve the bank's third attempt at a fundraising has been postponed to 17 July and will be held at the 12,500-capacity Sheffield Arena.
The bank's sinking share price leaves the prospect open of its underwriters, Citi and UBS, being left holding unsold shares. Analysts said the barrage of bad news on B&B would make the bank's 950,000 small shareholders, who hold 43 per cent of the stock, even less likely to take up their rights than before.
B&B rejected an approach from Clive Cowdery, who pioneered the buying up of closed life insurance funds, two weeks ago. Analysts do not expect Mr Cowdery to return unless he can secure a deal far below the 72p price he indicated before TPG pulled out.
TPG withdrew its offer to buy a 23 per cent stake after the Moody's downgrade triggered a get-out clause in its agreement with B&B. M&G, Legal & General, Insight Investment and Standard Life stepped in to support the entire £400m rights issue at 55p a share.
The total cost of the capital raising for B&B will be about £55m, up from an expected £24m for the original £300m cash call.
Fox-Pitt cut its price target on B&B from 55p to 43p and Société Générale slashed its target price to 40p. Pali International has set a price target of zero, arguing that the bank's risks do not make it worth investing.
The bank is searching for a new chief executive, with Rod Kent, the chairman, filling the shoes of Steven Crawshaw, who stood down due to ill health when the first rights issue was announced.
"Bradford & Bingley management appears in even less control of the company's destiny than it did before, so investors have no idea who might be running the business in a few months' time," the Fox-Pitt analysts said.