Bradford & Bingley: Rights issue explained

B&B's share price has fallen sharply since then amid concerns that investors may shun the rights issue, and because of some disquiet surrounding the circumstances of the cash call. Just weeks before the announcement, B&B had said it did not need a rights issue, so investors were spooked when it turned out the bank had decided to go ahead with one. Thus, when the shares fell dangerously close to the 82p level the bank decided to cut the rights issue price.

What you do partly depends on your personal circumstances, of course. But it has become increasingly clear that many investors were reluctant to put up more cash, and some analysts are now saying shareholders should vote against the new plan and force the bank to revert to the previous scheme.

If you decide to back the rights issue, assuming you hold 250 shares you will have to spend £104.5 to buy your 190 new shares. Your shareholding remains roughly the same in percentage terms, and you will receive dividends on both the old and new shares.

If you do not take up your rights you are likely to receive a smaller dividend (since the total payout will be split between a larger number of shares). The discount to the original share price has diminished with the fall in B&B's shares, which now sit below the 70p level.

This is normal up to a point, but it means your original investment is worth less, unless you put more money in and average down the total price of your shareholding. Or unless the shares recover dramatically.

If you do not take up your rights, you will be able to sell your entitlement in the market. You will be allocated what are known as "nil-paid rights", which are effectively a financial instrument giving you the right to buy the new shares at the discounted price. These will be listed on the market and can be bought and sold in the same way as normal shares.

What do I need to do now?

Firstly, ignore the documents you already have. The change in the terms of the rights issue require a whole new set of paperwork. You will receive a replacement circular giving details of an extraordinary general meeting to approve the cash call, and this will be sent out shortly. The EGM is expected to take place in the middle of July, and the previous meeting scheduled for 16 June has been adjourned. Once you get the circular, you can decide either to attend the meeting or cast your vote on the cash call by post. More details of how to accept - or not - the rights issue will be contained in a separate document which should be published some time before the EGM.

The bank has set up a helpline for shareholders: 0844 472 6003 from inside the UK or +44 844 472 6003 from overseas.