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High Street banks face huge losses as they bail out Bradford & Bingley
Jim Armitage, City Correspondent09.07.08
Britain's biggest High Street banks and pension funds are set to lose tens of millions of pounds from bailing out the stricken buy-to-let mortgage lender Bradford & Bingley.
Bradford & Bingley's shares have collapsed in recent weeks amid fears for its future.
Two attempts to bail the business out with new cash have collapsed and the company is now in the middle of a third attempted rescue plan.
Its biggest shareholders and six high street banks have agreed to take part in a £400 million emergency fundraising operation, buying shares which will be priced at 55p each.
But the shares have crashed since then, falling nearly 20 per cent yesterday alone.
Today they were trading at just 36p. Pension funds and life insurers Standard Life, Legal & General, Prudential and Insight, have agreed to pay about £150 million for their shares.
HSBC, Lloyds TSB, HBOS, Barclays, Abbey and NatWest owner Royal Bank of Scotland have, meanwhile, said they will stump up another £150 million.
Because of the crashing share price, both groups of investors are currently £50 million down.
But their Bradford & Bingley losses are nothing compared, relatively, to those of the 850,000 small shareholders who have seen the value of their shares collapse from more than 450p a year ago.
City analysts are taking an increasingly dim view of the shares' prospects.
A flurry of gloomy advice notes from the brokers yesterday and last Friday were followed with more depressing reading for shareholders today from broking giant Credit Suisse. It today cut its forecast for the shares from 55p to just 25p.
As well as the £150 million each from the shareholders and banks, City investment banks Citigroup and UBS have also pledged to buy at least £100 million of the new shares if they cannot persuade other investors to take part.
City regulator, the Financial Services Authority, is working hard to avoid a repeat of the Northern Rock crisis. It has pointed out that, because the £400 million rescue money has been absolutely guaranteed, Bradford & Bingley will be saved.
Analysts say the most likely longterm outcome is that Bradford & Bingley will be bought by another bank.
Today its shares had some respite from the desperate selling of recent days, gaining 2p.
Bradford & Bingley has been hit hard by the mortgage troubles caused by the credit crunch and the subsequent housing market woes. It has reported mounting arrears within its buy-to-let borrowing base as many property owners struggle with repayments.
One City firm yesterday cut its target price for the bank to "zero" in the wake of its credit rating downgrade last week by Moody's and the decision of private equity firm TPG to withdraw its £179 million investment.
A spokesman for Lloyds TSB, meanwhile, said: "We were one of the subunderwriters for the original deal, that remains the case as part of the restructured deal."
