B&B in forefront as banks suffer a mauling

Most UK bank shares took a mauling as the London stock market formally ended its five-year bull run and entered bear-market territory. But B&B bore the brunt of the damage.

Shares in the former building society - still desperately trying to raise £400 million of fresh capital through a rights issue - fell by more than 18%, or 8p, to 34p. This left them way below the rights issue price of 55p.

The rights issue, B&B's third attempt to raise new funds in the last two months, will go ahead because it is fully underwritten by Citi and UBS, with four large existing shareholders committed to take large stakes.

However, one broker was today suggesting that if the issue is to get away its price may have to be slashed yet again, with even more new shares issued. There were also growing calls for the next version of the B&B prospectus, which should be published on Thursday or Friday, to contain an up-to-date trading statement.

Last night's circular from B&B merely said there had been "no material change" since it last reported on trading between January and April. But with the half year now completed investors are clamouring to know more.

The Financial Services Authority is keeping a very close eye on B&B and will almost certainly be aware of its current trading situation. It is determined to avoid another Northern Rock, with talk of at least one major financial institution lined up to take over B&B if this rights issue were to fail.

Skipton Building Society today revealed it had looked at bidding for B&B before Texas Pacific, the US private-equity firm, came up with its rescue plan which it pulled out of last week.

Skipton chief executive John Goodfellow told Financial World magazine that the society " considered bidding for B&B, but TPG got there first with the money".

Today Skipton said it no longer had any such ambitions. But analysts still believe B&B will be taken over eventually, at no meaningful premium for shareholders.

This was reflected in the scale of the share selling today. Not only are hedge funds continuing to bet against the bank but so too are its 850,000 private shareholders.

Most got free shares when the society demutualised and floated on the stock market eight years ago. Many have now decided it is better to sell if, even for just 30p a share, rather than lose it all.

Broker Keefe, Bruyette & Woods cut its price target for the bank from 55p to 35p today. Sandy Chen at Panmure Gordon slashed his price target on rival Alliance & Leicester from 450p to 180p.