The week ahead

Aug 22 2008 By Andrew Mernin

Half-year results from major housebuilders and under-pressure lender Bradford & Bingley will be closely watched next week for signs of any further deterioration in economic conditions.

Bradford & Bingley’s interim results on Friday will be awaited with some trepidation by investors after a first half the beleaguered lender will want to forget.

During the first half of 2008, B&B’s travails have made a bleak financial soap opera of profit warnings, a shambolic fundraising attempt and boardroom upheaval.

Meanwhile the darkening economic climate is prompting deep uncertainly over the lender’s specialist areas - buy-to-let and self-certification mortgages - as the housing market slumps lower.

Although consensus forecasts for the first half were unavailable, the City has taken a dim view of B&B’s full-year prospects, predicting underlying profits down by more than two-thirds to £115.3m and a six-fold rise in bad debt charges.

Collins Stewart banking analyst Alex Potter warned: ``Buy-to-let and self-cert lending comprise around three-quarters of B&B’s loan book and these remain unproven in a downturn."

The first half also saw the resignation of chief executive Steven Crawshaw, who stepped down in June due to ill-health, and a botched attempt to shore up its balance sheet with a rights issue.

In April, B&B first denied that it needed extra capital - before unveiling a £300m rights issue in May at a ``discount" price of 82p.

But shares fell below this level and following a profit warning, it announced alternative plans to offer cheaper shares - as well as selling a 23% stake in the company to private equity firm Texas Pacific.

Texas walked away from its £179 million investment in July, forcing B&B to revamp its plans for the second time.

The lender instead pressed on with another enlarged rights issue to raise the £400m, supported by its biggest institutional investors, and underwritten by investment banks Citi and UBS. Just over one in four of the new shares were bought as shares traded below the 55p offer price.

Alliance & Leicester attracted a £1.3bn takeover by Spanish bank Santander in July but a similar move for B&B is unlikely, Mr Potter added.

``B&B has only a limited branch network (under 200), a relatively weak brand, is positioned in a very difficult market segment and has little earnings diversity.

``We feel it does not make a sensible beach-head for a foreign acquiror nor offers much interest to the few UK names that could consider a deal," he said.

Guinness and Johnnie Walker drinks firm Diageo is set to deliver on its target of 9% operating profit growth in full-year results due on Thursday.