Chaos at B&B 'fuelling fears of small investors'

The UK Shareholders Association (UKSA) has poured scorn on Bradford & Bingley's claim that its renegotiated rights issue is more attractive for small investors.

Rod Kent, B&B's executive chairman, said on Monday that one of the reasons for reducing the price of the cash call to 55p from 82p was so that small shareholders could take up their rights and participate profitably in the issue. At the original price the shares would have traded "under water", making the rights worthless, he said.

But UKSA said the chaotic goings-on at B&B had increased fears among small shareholders, discouraging them from taking up the rights and leaving them out of pocket. Roger Lawson, a director of UKSA, said: "Directors of big public companies don't think in the same way as small shareholders. They will see this as the company running out of money because of management failure. It is going to destroy confidence in the board – whatever confidence there was – making it harder to get the rights issue away."

Many of B&B's 950,000 small investors got their shares when the former building society demutualised in 2000. A lot of them are pensioners, often on low incomes, who may not be able to afford to take up their rights or understand the issues involved, Mr Lawson said.

Shareholders who do not buy the new shares should still receive the value of the rights, which will be sold for them. But their holdings would be diluted and they would lose out on some of the dividend payments they relied on, UKSA said.

UKSA has written to the Financial Services Authority calling for an investigation into the company's earlier claim that it was not planning a rights issue, the slashing of the issue price, and the possible violation of pre-emption rights from selling a 23 per cent stake to TPG, the private equity group.

Analysts continued to raise questions about the reasons for the scrapping of the original rights issue. Alex Potter, a banking analyst at Collins Stewart, said the new plan was worse for investors and that they should vote against it.

He added that the bank's agreement to take on another £2.1bn of mortgages from GMAC would "crowd out" B&B's ability to write new loans of its own at higher margins while driving up bad debts. The GMAC loans already bought by B&B were meant to be underwritten to the same standards as B&B's assets but the losses are "little short of startling", Mr Potter said.