FTAlphavilleFT Alphaville is a 2008 Webby Award Winner

• News
• Markets Live

14 April 2008:

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.

14 May 2008:

The Board of Bradford & Bingley plc announces a rights issue to raise approximately £300 million, net of expenses, in a 16 for 25 rights issue at an issue price of 82 pence per Bradford & Bingley share. This represents a 36% discount to the theoretical ex-rights price and a 48% discount to the closing price of Bradford & Bingley shares of 158.75 pence per share on 13 May 2008, the last trading day before this announcement.

The proceeds of the rights issue will strengthen the Group’s capital position and will mitigate the impact of the previously announced reductions in the value of certain of the Group’s treasury investments.

Someone, we would suggest, should be clearing their desk about now - notably Steven Crawshaw, chief executive.

The company outright denied four weeks ago that it was planning a rights issue, after the Sunday Telegraph reported that B&B had brought Citi onboard to help with an equity raising. Mr Crawshaw even had the cheek to reiterate that denial at the time of the bank’s interim management statement, trumpeting strong retail inflows, a £2bn undrawn funding line and its healthy capital ratios, even as the lender signalled the need for £82m in further writedowns.

Now, what do you know. B&B is asking investors for £300m in a deeply discounted rights issue, underwritten by none other than Citi, alongside UBS. The bank’s interim dividend, as is now traditional among the banks, will be scrip.

The analysts back in April, who broadly opted to believe the rumour in the press rather than the denial from the company, have been proved correct. Management’s credibility with the market is in tatters - and Mr Crawshaw’s feeble defences on Wednesday are unconvincing.

His argument, reported by Reuters, that market stability was key to the timing of an issue amounts to an admission of a barefaced lie in April. An issue that month would have been “in the middle of a maelstrom,” he said on Wednesday.

The idea that B&B is upping its capital ratios in response to the cash calls at other banks, because it has “historically been well capitalised relative to its UK peers”, is a nonsense. Bradford & Bingley is now aiming to take its core Tier 1 ratio to 9.2 per cent, - higher than others, but a level needed to give comfort to investors given the bank’s specialism in troublesome niches such as buy-to-let and self-cert mortgages.

UK banking rights issues were in any case a virtual certainty back in April - with speculation focused on who would move first, and potentially gain advantage by doing so. RBS opted to go just a week after B&B’s trenchant denial that they would seek funding.

B&B has about £1bn of structured finance assets outstanding and thus ample potential for further writedowns. The value of that book fell “only modestly” in April, the bank admitted on Wednesday, hitting regulatory capital to the tune of about £5m. The rights issue doesn’t come with a profits warning either - trading continues as per the interim statement back in April.

So what has changed since April? The B&B share price - down 7 per cent on Wednesday and 44 per cent since the beginning of the year. And Mr Crawshaw’s career prospects.

Related links
B&B non-rights issue proves unpopular - FT Alphaville, April 08