Bradford & Bingley rescued by British banks

Struggling former building society, Bradford & Bingley (B&B), is to be rescued by British banks due to pressure from the Financial Services Authority (FSA).

The regulator has been taking responsibility for ensuring that B&B’s capital-raising does not head towards disaster after the criticism it received for neglecting to foresee the problems that led to the demise of Northern Rock.

The six banks: Abbey, Barclays, HBOS, HSBC, Lloyds TSB and RBS
have all agreed to buy a large portion of shares in the beleaguered bank.

Over the last 12 months, shares in B&B have lost almost 90% in value, a level at which shareholders refused to buy anymore.

B&B, which is Britain’s largest buy-to-let lender, has suffered many blows recently after credit agency, Moody’s, cut its rating from A3 to Baa1. This resulted in US private equity firm Texas Pacific Group (TPG) withdrawing from a deal to inject £179 million into B&B in exchange for a 23% stake.

Last weekend, financier, Clive Cowdery who runs Resolution investment group, also walked away from a deal with B&B after he planned to pump £400 million into the troubled lender.

The six banks have pledged to buy the shares which B&B’s main underwriters, investment banks Citigroup and UBS, do not buy, a term known as ’sub-underwriting’.

The British banks will end up owning at least 30% of their rival.

Hector Sants, the FSA’s chief executive, said any difficulties surrounding B&B’s rights issue would send the entire stock market into a panic and have an impact on tracker funds.

Insight, Legal & General, Prudential’s M&G and Standard Life, which collectively own 14.25% of B&B, are to fund £179 million.

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