Underwriters left on the hook as B&B shares sink below rights price

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The Independent Online

Shares in Bradford & Bingley, the beleaguered UK bank, yesterday slipped below the price set for its £400m rights issue, leaving the underwriters UBS and Citigroup stuck with potentially millions of pounds worth of stock unwanted by existing investors.

The B&B shares slipped to 54.75p, lower than the 55p-per-share rights issue price for the first time this week, with the process set to close at 11am on Friday. The rights issue has been sub-underwritten by high street banks including Abbey, HBOS, Barclays, RBS, Lloyds TSB and HSBC, which will also be nervous after the weak response to the deeply discounted rights issue launched by its larger rival HBOS last month, after its shares fell below the issue price.

Some of the group's largest investors, comprising Legal & General, Standard Life, M&G and Insight have also pledged to pick up some of the unwanted rights.

B&B's issue will close shortly after the majority of shareholders rejected HBOS's offer in July. Investors, making up 8.3 per cent of the shareholder base, picked up only 30 per cent of the shares on offer. The take-up was so low after the group's share price traded below the rights offer in the days leading up to the close of the offer. It has been a tough year for the banks, especially those providing mortgage operations, in the wake of the US sub-prime crisis and stories that the deteriorating UK economy could be heading for recession.

There had also been fears that the downward spiral in HBOS's shares had been caused by hedge funds short-selling the stock, which moved the FSA to put in emergency legislation to disclose any short positions.

B&B's shares have been among the worst hit in the sector, slumping from over 400p when the credit crunch hit. Its rights issue has been particularly tortuous. It announced the plan to raise money in May, only a month after scorning the idea. The following month it slashed the price from 82p and announced private equity house TPG would be paying £179m for a 23 per cent stake.

The group then fought off a rival proposal from Clive Cowdery's Resolution, which proposed, with the backing of the four large shareholders, to take effective control of the group with a £400m cash injection.

The B&B board, headed by Rod Kent, dismissed the counter offer, angering shareholders, only to see its own plans almost collapse the following month. In the wake of a Moody's credit downgrade, TPG walked away.

The Financial Services Authority and the Bank of England encouraged the move after they had received assurances from the four shareholders that they would step in.

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