FSA urges big five banks to support B&B
Britain’s big five banks have agreed to back Bradford & Bingley’s (B&B) £258 million rights issue after the Financial Services Authority (FSA) urged them to help banks throughout the ongoing credit squeeze.
It is understood that Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland, have each agreed to sub-underwrite £20 million worth of the revised fundraising.
Consequently, the banks have agreed to take up £100 million of shares from the main underwriters, UBS and Citigroup, should the issue fail.
Last week, shares in B&BS tumbled by 30% after the UK’s biggest mortgage lender, issued a profit warning.
It made an £8 million pre-tax loss in the first four months of 2008, compared with £108 million profits the same time last year. B&B said problems with its buy-to-let mortgages as homeowners struggle to repay loans, are the root of their problems.
B&B had no choice but to reduce the price and size of the rights issue and sold a 23% stake to US private equity firm, Texas Pacific Group, for £179 million.
City insiders said it is not unusual for clearing banks to sub-underwrite but it was rare to see all five committed at the same level.
It is believed that HSBC have offered to take a bigger role in the event of a complete failure of the issue.