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Tuesday 07th of October 2008
July 4, 2008

B&B rescued by investors after TPG walk away

by Kay Murchie

Struggling lender Bradford & Bingley (B&B) has been rescued by a group of UK investors after US private equity firm Texas Pacific Group (TPG) pulled out of a deal, after credit rating agency, Moody’s, downgraded the lender’s debt.

This now means that B&B has the lowest credit rating out of all the major British banks which means raising funding in the financial markets could be more costly.

TPG has walked away from a deal to inject £179 million into B&B in exchange for a 23% stake.

Insight, Legal & General, Prudential’s M&G and Standard Life, which collectively own 14.25% of B&B, have stepped in to fund £179 million as part of a £400 million fundraising deal that will be priced at 55p a share.

The rights issue is to be underwritten by the investment banks, Citigroup and UBS.

However, shares in B&B lost 14% this morning, falling below the rights issue price level.

B&B, which is the UK’s biggest mortgage lender, has suffered due to the property market slowdown.

It was announced last weekend that 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 UK lender.

Mr Cowdery accused B&B of obstructing all his efforts to put his plans forward and said the entrenched position of the board of B&B has prevented the constructive engagement necessary to finalise this proposal.

The new capital raising plan announced today has been welcomed by many analysts, believing that UK investors have more of an interest to boost the British banking system, while TPG was motivated more by self-interest.

David Buik of BGC Partners said it is a good thing that TPG have walked away, otherwise the extraordinary general meeting on July 14 could have been an extremely ’stormy affair’.

Commenting on the new deal, B&B’s executive chairman, Rod Kent, said it was disappointing that TPG had withdrawn its subscription agreement but B&B continues to be well funded and the capital raising will strengthen our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK.

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