B&B underwriters set for £100m loss

Jul 9 2008 by Peter McCusker, The Journal

BRADFORD & Bingley shares have plunged to fresh lows amid mounting fears that the stock is worthless.

The buy-to-let lender saw shares drop 25% at one stage to just 30p – almost half the 55p rights issue price offered to shareholders under its cash-call.

One City firm cut its target price for the bank to zero in the wake of its credit rating downgrade last week and the decision of private equity firm TPG to withdraw its £179m investment.

Yesterday’s latest stock price fall increases the chances that the banks and shareholders underwriting B&B’s troubled fundraising plans will see potential losses of more than £100m. The share losses threaten investor take-up in the £400m rights issue, which may leave the underwriters forced to buy the shares and suffer hefty paper losses.

Citigroup and UBS have agreed to underwrite the entire rights issue, although four of the bank’s biggest shareholders – including Standard Life Investments and Legal & General – stepped in last week to sub-underwrite after TPG pulled out.

Fees from the rights issue are set to total around £55m for just £400m of funding, reportedly making it one of Britain’s most expensive cash calls.

The bank is currently in its third attempt at raising cash.