Six high street banks step in to guarantee £220m of B&B fundraising

Six high street banks step in to guarantee £220m of B&B fundraising

Six high street banks have agreed to guarantee up to £220m of the £400m Bradford & Bingley fundraising which was thrown into disarray last night when private equity house TPG pulled its investment in the buy-to-let lender.

As a result of the solution orchestrated by the Financial Services Authority, the six banks could each end up with stakes in B&B.

The six banks are Abbey, owned by Santander of Spain, Barclays, Lloyds TSB, HBOS, HSBC and Royal Bank of Scotland. With the exception of Abbey, they had already been persuaded to take part in the rights issue but have now agreed to increase their involvement in the fundraising after negotiations which took place in the run-up to the decision by TPG to walk away. They are thought to be guaranteeing around £40m each.

B&B's shares fell 11p to 50p today after TPG pulled its investment following a downgrade of the bank's credit rating by Moody's Investor Service.

The shares ended below the 55p at which the rights issue is priced, suggesting that high street banks and the main underwriters of the fundraising — Citi and UBS — could be left holding the shares. B&B shareholders are being asked to buy 67 new shares for every 50 they already own.

Shares in Alliance & Leicester, which is facing questions about its need to raise funds, were driven 13% lower.

At one point, the six banks were preparing to act as substitutes for the £179m which.....continued below

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TPG had agreed to invest in B&B in return for a 23% stake. But by the time the Texan-based group left the deal last night, it had been agreed that the fundraising would be structured as a larger rights issue backed by existing shareholders and underwritten by investment banks Citi and UBS.

The six high street banks will effectively act as sub-underwriters - essentially providing a second level of guarantee to the fundraising. This means they stand ready to own shares in the lender if existing investors in B&B decide not to take up their rights to buy shares at 55p. Private investors comprise some 37% of the bank's shareholder base and these investors tend not to participate in rights issues which could leave the underwriters awash with shares.

Both Citi and UBS also had the opportunity to walk away with TPG, when the credit ratings agency Moody's warned that it was ready to downgrade B&B's debt to one of the lowest ratings of any major bank at Baa1. Four major shareholders - who had been angered by TPG's involvement - Standard Life, Prudential's M&G, Legal & General and Insight, owned by HBOS - have also agreed to act as sub-underwriters.

From the outset, the B&B fundraising has been controversial. On April 14 it had first denied it needed to raise cash only to announce a rights issue to raise £500m on May 14 at 82p a share. But on June 2 the rights issue was repriced when B&B issued a profits warning and admitted its chief executive Steven Crawshaw was too ill to continue working. It was at this point that TPG was brought in to invest £179m and the rights issue scaled back to £258m and priced at 55p.

The third attempt at the fundraising has left Rod Kent, the chairman who has been running the lender since Crawshaw's departure, facing intense pressure from shareholders, along with other members of the board which is expected to be overhauled.