FTAlphavilleFT Alphaville is a 2008 Webby Award Winner

• News
• Markets Live

Investors are a fickle bunch. Massive rights issue at UBS (confirmed) was good for a 7 per cent jump in the share price of the beleaguered Swiss bank. Reports, now denied, of a planned rights issue at Bradford & Bingley and the shares get marked down by as much as 7 per cent.

The bank’s shares settled off about 2 per cent lower on Monday morning, after its rather categorical denial:

Contrary to press speculation today, Bradford & Bingley announces that it is not intending to issue equity capital by way of a rights issue or otherwise. Bradford & Bingley has a strong capital base, above its regulatory requirements, and as a result of the Board’s conservative approach, has funded its business activities through 2008 and into 2009. In the current market environment, the Board will naturally continue to monitor closely the balance sheet strength of the business and its funding plans.

So why don’t investors believe them, opting to sell the rumour whether or not there was the prospect of buying the news further down the line?

The “speculation” in question was in the Sunday Telegraph, sourced to people “close to” B&B, and included the nugget that Citi has been asked to help out with a potential cash call. A final decision on the equity raising had not yet been taken, the story added, nor had the amount to be sought been agreed.

The story had added circumstantial evidence in the form of chief executive Steven Crawshaw’s plea, in his role as head of the Council for Mortgage Lenders, last week for the Bank of England to “show leadership”, warning that mortgage lending could halve this year.

Deutsche Bank cut its B&B target price to 150p, while Bruce Packard at Pali was among those to opt broadly to believe the Sunday Tel over the company:

Although the story has been denied, in the current environment we are amazed that a newspaper would publish such a story unless the source was a ‘felt collar’.

But aside from the veracity of the story, investors know that the normal lines of financing remain closed for the UK’s banks. B&B has a £2bn funding line in place, which should allow it to finance maturing debt into next year. As of a Morgan Stanley conference, at the end of March, that facility had not yet been drawn on.

The bank is positioned slap bang in the markets most apt to make investors twitchy: buy to let and self-cert. And the nasties in B&B’s latest preliminary results added to their fears. From Pali:

Capital: BB/ has 8.6% tier 1 ratio, high for a UK bank. But they do have impaired wholesale assets. This includes, £125m of SIVs, half of which has been impaired. CDOs & CLOs £456m, and £1.2bn of AAA European MBS. A £30m impairment charge has been taken against the CDOs.

With the prospect of further write-downs, sharply lower lending volumes and slimmer margins, investors already had reason to be wary. With speculation about rights issues surrounding all the UK banks, the perception of a first mover advantage in tapping the market for funds, and even the prospect of using capital to take advantage of constrained rivals, it would be slightly odd if B&B, along with the rest of the UK’s banks, weren’t at least considering an equity issue.
Related links
Bradford & Bingley denies rights issue - FT.com
Fears grow that banks need extra capital - FT.com