Buyout rumours push B&B shares higher

Buyout rumours push B&B shares higher

Bradford & Bingley was today being tipped by City analysts as the next bank to surrender its independence, sending its shares soaring 17% on hopes of a takeover bid.

The bank is Britain's last remaining standalone mortgage lender, following the takeover of Alliance & Leicester by Santander and the nationalisation of Northern Rock. Its shares were bolstered by reports that the Financial Services Authority was dusting down contingency plans that might involve it being taken over by a larger, stronger bank.

Three foreign banks – Santander, ING and NAB – had been reported as potential suitors although the City believes they may be reluctant to step forward.

Hopes for a white knight were also raised following comments by Carla Antunes da Silva, banking analyst JPMorgan who said: "We do not believe it is a viable standalone entity".

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After jumping 17% in early trading, B&B shares settled 10% higher at 30.5p, up 2.75p. Its shares are still down almost 90% in the last year.

The buy-to-let specialist bolstered its capital reserves earlier this year through a protracted £400m rights issue, and insists it is well-capitalised.

But there are still concerns over B&B's ability to ride out the financial crisis in the long term, given the structural changes in the money markets.

"With securitisation markets showing no signs of returning this will question the viability of a bank like B&B and going forward the costs for monoliners such as B&B will put them at a significant disadvantage. We are also concerned by the pick up in arrears we have seen, especially given the rapidly deteriorating UK macro environment," Da Silva said.

Alex Potter, an analyst at Collins Stewart, believes the FSA is desperate to avoid a repeat of the drama surrounding HBOS, which is being taken over by Lloyds TSB.

"One of the things the events surrounding HBOS in the past week have taught us is that a share price can clearly impact on the ability of a bank to source liquidity and fund its balance sheet. The FSA, having watched this happen to the UK's largest mortgage lender, is clearly nervous that the same thing may happen to one of the sector's minnows," Potter said.

Last week, rating agency Moody's downgraded B&B, which will push up its borrowing costs.

Sandy Chen, an analyst at City stockbrokers Panmure Gordon, warned that he expects B&B to make bigger losses this year, and slashed his share price target from 20p to just 7p.

"The press reports that the government is looking for a white knight for B&B – and the absence of any such bidders so far - adds to the uncertainty about B&B's future."

"Our concern is that significant retail deposit outflows may occur, forcing B&B to rely even more heavily on expensive wholesale funding," Chen added.

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