Friday lunchtime business bulletin

Aug 22 2008 By Andrew Mernin

Nearly 30% of mortgage lender Bradford & Bingley will end up in the hands of other banks following its £400m fundraising move, it was revealed today.

The rights issue’s backers - investment banks Citi and UBS - as well as a clutch of high street banks - will hold almost 427 million new shares in B&B between them, representing 29.5% of its 1.45 billion shares in issue.

B&B began moves to shore up a balance sheet knocked by the credit crunch back in May, but has been forced to change its plans twice as concerns over its lending book grow in a housing downturn.

Under the current scheme, the lender offered for sale nearly 828 million new shares in a 67 for 50 rights issue.

Of these, just 27.8% - or 230.4 million - were taken up by investors, as shares were trading below the ``discounted" 55p price of the issue.

Figures showing the UK’s economy stalled in the second quarter of 2008 had a positive impact on London shares today.

Analysts said the revision from growth of 0.2% to no change raised hopes that interest rates will be cut sooner than expected.

The FTSE 100 Index was in positive territory ahead of the official figures, before accelerating to stand 51 points higher at 5421.2 by mid-morning.

Financial firms were among the main risers, with Halifax Bank of Scotland ahead 12.25p to 284.25p and Lloyds TSB up 12.25p at 284.25p.

A shortened fallers board was frequented by commodity firms after the price of oil steadied following a gain of five US dollars yesterday. Cairn Energy, which is due to post results next week, fell 52p to 2824p.

International Power was another faller, down 1% or 2.5p to 386p, after it said two units at its Rugeley power station in Staffordshire were likely to be out of action until late September at the earliest. The financial impact, before any insurance recoveries, is estimated at around £70m.

The cost of two-year fixed rate mortgages is back at the level it was in August last year when the credit crunch first began to bite, figures showed today.

The average rate for one of the deals is now 6.59%, only fractionally above an average of 6.56% in August last year, and well down on a level of 7.08% in early July, according to financial information group Moneyfacts.co.uk.

But despite the fall in rates, arrangement fees on the deals still remain higher than last year, while lenders continue to demand large deposits in order to secure their best rates.

The average mortgage arrangement fee is now £964, up from £803 in August 2007, while lenders will now advance an average of just 80% of a property’s value, compared with 90% 12 months earlier.

The figures came as Nationwide Building Society became the latest lender to cut the cost of its deals, with the announcement that it is reducing its fixed rate loans by up to 0.2% next Thursday.

The pound at 10am was US$1.8607 compared to US$1.8753 at the previous close while the euro at 10am was £0.7979  compared to £0.7931 at the previous close.