B&B signals £300m rights issue, despite denials just a month ago

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The Independent Online

Bradford & Bingley defended its £300m rights issue yesterday, saying the cash call was necessary to shore up the confidence of customers and investors.

The announcement was seen as a U-turn after the bank quashed rumours of an imminent cash call only a month ago. B&B also spurned the chance to unveil a fundraising with its annual general meeting on 22 April.

Steven Crawshaw, the bank's chief executive, said: "It is to rebuild confidence in the UK banking system and this bank in particular and to give depositors, investors and debt funders confidence that this bank will come through this period into a mortgage market with far fewer players than in the last couple of years."

Mr Crawshaw said the bank had never closed the door on a rights issue and had waited for more stable markets to "draw a line" under writedowns from treasury assets.

His argument raised eyebrows among some analysts, who said conditions could easily have got worse rather than easing. "At the very least, the speculation will be that B&B can see a problem looming in its balance sheet, which it denies, or is in recession-planning mode," said analysts at Keefe Bruyette & Woods.

B&B's fully underwritten issue will offer 16 new shares for every 25 existing ones, pricing the issue at 82p a share, a 48 per cent discount to Tuesday's 158.75p closing price. The total cost of the issue was said to be about £24m, most of which covers the expense of contacting the bank's 850,000 shareholders. The sale would boost B&B's core tier-one capital ratio at the end of 2007 to 9.2 per cent – high for a UK bank. The interim dividend will be paid in shares rather than cash and will be more heavily covered by earnings. Analysts said this would more than halve dividends per share.

B&B's share sale adds to Royal Bank of Scotland's record £12bn rights issue, which gained shareholder approval yesterday, and HBOS's planned £4bn cash call. Investors said Barclays, which updates on trading today, and Alliance & Leicester will be under more pressure to boost capital.

B&B shares fell 9.3 per cent to 144p, the lowest since the former building society floated in 2000 but above the theoretical ex-rights price of 129p.