Bradford & Bingley surprises with £300m cash call
Wednesday, 14 May 2008
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Bradford & Bingley Plc surprised the market today with an emergency £300m cash call to bolster its balance sheet, just a month after saying it had no plans to do so.
The move was greeted by analysts as a sharp u-turn, after Bradford & Bingley said on 13 April it was monitoring its balance sheet strength but was "not intending to issue equity capital by way of a rights issue or otherwise".
The mortgage bank's executives, however, said the buy-to-let specialist had waited for markets to stabilise before going ahead with the share issue and the decision to pay its half-year dividend in shares to strengthen its capital ratios.
"(The) stability of the markets is the moment we feel is the right moment to launch a rights issue, not in the middle of a maelstrom," Chief Executive Steven Crawshaw told reporters.
"That's the difference that a month makes - it's the fact we have been able to see a much more stable period across the globe, and it's into those stable periods that a rights issue should be launched."
Wednesday's move is the latest in a series of fundraisings by global banks and by UK lenders as they seek to rebuild their capital reserves following writedowns of risky assets, and it will prompt fresh speculation that other banks, including rival Alliance & Leicester, could follow suit.
In the fully underwritten issue, which totals roughly a third of B&B's current market value, the lender will issue 16 new shares for every 25 in existence, pricing it at 82 pence per share, a 48 per cent discount to Tuesday's 158.75 pence closing price.
The bank's shares tumbled in opening trade but recovered to trade down 9.45 per cent at 143.75p at 0741 GMT.
"This seems a complete u-turn from a month ago, when B&B played down press speculation that they would do a rights issue," analyst Bruce Packard at Pali International said.
"It has been suggested to us that the B&B CEO is 'out of his depth', and we wouldn't disagree."
Others suggested rival lenders could follow suit after Royal Bank of Scotland , HBOS and Paragon turned to shareholders earlier this year.
"With RBS, HBOS and B&B having announced rights (issues), we can no longer discount A&L, Barclays and even Lloyds following suit," analysts at KBW said in a note.
B&B said the proceeds would take its proforma, end-2007 Tier 1 ratio up to 10.1 per cent from 8.6 per cent, and its Core Tier 1 capital ratio to 9.2 per cent, at the high end of the UK sector, up from the reported 7.7 per cent.
It also set a new target between 8 and 10 per cent.
Britain's eighth-biggest listed bank last month announced 38 million pounds of losses linked to the value of structured debt investments, and the bank said on Wednesday that April writedowns had totalled a further 13 million.
B&B said it continues to trade in line with its April 22 trading statement, but it will pay its interim dividend, due in October and expected to be around 4.2p per share including new stock, in shares instead of cash.
Its 2008 dividend will be paid in cash.
B&B is targeting underlying dividend cover of between 2 and 2.5 times underlying earnings over the medium term, it said. The group has in the past been less than 2 times covered.
