Tonight:
4°c
While most attention in the City is focused on HBOS and whether its £4 billion rights issue will be left with the underwriters, it is in fact the much smaller Bradford & Bingley issue that should be the main centre of concern.
The HBOS issue, whether it fails or not, involves no great issues of principle, equity, integrity or corporate governance - just the prospect of a bit of financial pain for investment banks who were well rewarded for taking the risk they appear to have misjudged.
Bradford & Bingley, by contrast, has all the above. It is arguably the biggest test of how the City is run, how it should be run and of its whole relationship with Whitehall since this Government came to power in 1997.
It can be seen as encapsulating all those uncomfortable aspects of New Labour and indeed New Treasury behaviour that many have tried to ignore, but which keep coming to the surface in the form of alarming policy shifts and a casual disregard for convention, law and property rights.
Labour's distrust of market solutions, its contempt for long-established City institutions and practices, its willingness in any given crisis to reach for a US adviser and an alien solution - Bradford & Bingley has them all.
The key bit of history is that Bradford & Bingley launched one rights issue a bit over a month ago,then came back a few days later with a revised one to raise rather lessmoney at a much lower price. This was coupled with a deal under which private-equity house TPG agreed to buy new shares amounting to almost 25% of the company.
The reason for the revision was that B&B discovered things were worse than it thought, and its underwriters threatened to invoke the law rather than honour a commitment they said was made when they had not been given the full facts.
The effort to raise new capital therefore looked like it might fail. So the Government - panicked by the thought of another bank failure, and determined not to go through another Northern Rock saga - insisted that Goldman Sachs be brought in immediately to find a solution.
Goldman Sachs has notably close relations with TPG, so guess what? TPG agrees to pump in new capital - though it only had four days to do its due diligence. No wonder some question whether Goldman's close links with TPG were totally compatible with its role as an independent adviser to Bradford & Bingley.
The real point, though, is that no one thought to tell the existing shareholders what was going on or ask whether they could help. The amount of money the bank needed was not, in the scheme of these things, a lot and was certainly well within the ability of City institutions to fund. History is full of examples where they have ridden to the rescue of stricken companies.
This time, though, they were shut right out of the loop, and with that went one of the key principles of share ownership in this country - the preemption rights which prevent shareholdings being diluted against their owners' will.
It gets worse. In the forthcoming shareholder vote on the deal, the revised rights issue and the TPG injection have become inseparable. Shareholders cannot support one without the other. They therefore have an impossible choice - vote for a deal which destroys a core principle of corporate governance, or risk destroying the company. Robert Mugabe could not have designed it better.
To add further insult to injury, there is also a clause in the deal that says that TPG can never be diluted. It is against this background that the leading institutional shareholders, Legal & General, Standard Life, Prudential and Insight, have decided to take a stand, letting it be known quietly around the City that if another bidder were to appear, they would be strongly inclined to give it their backing.
That bidder in the shape of Resolution's Clive Cowdery has now shown his hand. This gives the B&B directors an opportunity they scarcely deserve to redeem themselves. Rather than refuse to treat with him, the Bradford & Bingley board should give Cowdery every encouragement. This deal has an importance way beyond its size.
