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B&B SEEKS £300M IN CASH CALL U-TURN

Thursday May 15,2008

By Andrew Johnson, Associate City Editor

Bradford & Bingley launched a shock £300million cash call to bolster its balance sheet yesterday, just a month after denying reports it was planning a rights issue.

The U-turn sent the shares tumbling 14fp to 144p, their lowest since the bank floated in 2001 — valuing it at £890million — and led analysts to question the future of chief executive Steven Crawshaw.

It sparked fears the bank, which specialises in higher-risk buy-to-let lending, is expecting to announce large bad-debt problems later this year as house prices fall and the credit crunch bites.

Under the terms of the rights issue, the bank’s investors, including 850,000 private shareholders, will be offered
16 new shares for every 25 they own at 82p each. It is a steep 48 per cent discount on Tuesday’s closing price.

The specialist mortgage lender added the half-year dividend would be paid in shares not cash.

Crawshaw defended the move, arguing a “lot can change” in a month. He said the bank had to maintain a higher level of capital reserves than rivals such as Royal Bank of Scotland and HBOS, which have boosted their own reserves with massive rights issues recently. RBS yesterday won 95 per cent shareholder approval for its £12billion fundraising.

He said the move would also give B&B easier access to the Bank of England’s £50billion pot.

The fundraising would help the bank cope with the £308million hit it has suffered from credit-crunch investments this year but the main reason was to finance growth, Crawshaw said.

City analysts said the move was a complete U-turn. Pali International’s Bruce Packard said: “It has been suggested to us that the B&B chief executive is out of his depth and we wouldn’t disagree.”

Credit Suisse said the move would cover the company against future bad debts. KBW said it could not rule out any other bank following suit, including A&L, Barclays “and even Lloyds TSB”.