Markets live chat transcript for the chat ending at 12:09 on 2 Jun 2008. Participants in this chat were: Paul Murphy (PM) Neil Hume (NH)
PM:
Hiya!
PM:
Welcome to Markets Live.
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This is FT Alphaville’s daily pop at the banking sector.
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Which today we and others are targeting with Stinger missles.
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Another extraordinary morning in the financials.
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And in the extraordinary tech issues facing one N Hume
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Neil is back from his leisurely week long holiday.
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he doesn’t know that we put various stories out under his name last week
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Such as all the detail on the Alliance Comms/MTN deal
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As soon as Neil logs on we will get on with B&B
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Helen has been doing a truly heroic live blog of the Bungle & Broke conference call with analysts.
PM:
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That is available here:
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Went on for a full hour and a half
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Only finished wehn chairman Rod Kent had to take a pee
NH:
morning
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we are not going to have any comments about Steven Chamshaw dicky ticker.
NH:
that’s Crawshaw
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and clearly, doctors advised that the conference call might have been seriously dangerous.
PM:
No joking matter. Sensible advice.
NH:
Helen was on the call for 90 mins.
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Thought it was gong to run into Markets Live.
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Anyway, lets cut to the chase here.
NH:
What? – that it’s an outright scandal.
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Rights issue denied – then it arrives.
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Trading is said to be fine – then it is anything but fine.
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just two weeks later
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Let’s me know when this bank releases some information that I can take to be accurate.
PM:
For those who have spent the morning locked in a cupboard, news on Monday is that B&B has parted company with its CEO. The rights issue has been repriced – at 55p. And TPG have come in as a strategic investors.
NH:
But what is troubling here is that none of it seems to add up.
PM:
We’ve got Rod Kent – who has taken up the executive reins – emergency style.
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There are lots and lots of question markets over timing – who knew what, when.
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When TPG brought on board.??
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When they knew the mortgage book was deteriorating so swiftly. Etc etc etc.
PM:
People will be pouring over this.
NH:
You know its things like Kent saying the bank only got details on the arrears position for April at the end of May.
NH:
Can you believe that????
PM:
No
NH:
A four week gap to get what is perhaps the most important metric for a bank in the position of B&B.
PM:
Have you got any analysts research on all this.
NH:
Er, yes. How much do you want?
PM:
Well, put a load up – then people can chose what to read. Obviously all this prior to the conference call.
PM:
bickie
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NH:
This is from Dresdner
NH:
If it is confirmed, TPG’s investment should hopefully provide some stability for
the company. TPG has a proven track record and has presumably had access to
internal management information regarding the state of the loan book and the
bank’s credit crunch assets.
the company. TPG has a proven track record and has presumably had access to
internal management information regarding the state of the loan book and the
bank’s credit crunch assets.
We include both Bradford & Bingley and Alliance & Leicester (Sell) in our
unattractives portfolio. We would expect the share price to head towards TPG’s
in-price (if that investment indeed happens) and hence set a Sell
recommendation. Our target price is 55p, the press’s cited number for TPG.
NH:
this is from Alex Potter at Collins Stewart
NH:
SELL | Target: Under review | Price: 89p | UK | Banks | 2 June 2008
Oh no, not again. Another profit warning and a new rights issue
■ Profit warning as revenues weaken and BTL arrears spike
B&B has this morning issued another profit warning. Profit for the first four months of the year is down almost 50% yoy. This is being driven by weakening revenues (rate of remortgaging is slowing compromising ability to write new higher-margin business as well as greater savings competition) and spiking BTL arrears (to 216bp from 163bp at 31-Dec-07 and 143bp at 30-Jun-07). The outlook statement, most importantly, indicates that conditions will continue to worsen on both revenues and asset quality through 2008. Management’s previous claims that BTL would remain higher-quality lending than the mainstream now appear very naïve.
Oh no, not again. Another profit warning and a new rights issue
■ Profit warning as revenues weaken and BTL arrears spike
B&B has this morning issued another profit warning. Profit for the first four months of the year is down almost 50% yoy. This is being driven by weakening revenues (rate of remortgaging is slowing compromising ability to write new higher-margin business as well as greater savings competition) and spiking BTL arrears (to 216bp from 163bp at 31-Dec-07 and 143bp at 30-Jun-07). The outlook statement, most importantly, indicates that conditions will continue to worsen on both revenues and asset quality through 2008. Management’s previous claims that BTL would remain higher-quality lending than the mainstream now appear very naïve.
NH:
Rights issue is restructured and TPG taking 23% stake
The size of the rights issue is being raised to £400m (from £300m) and the issue price dropped to 55p (from 82p). The theoretical ex-rights price is now 70p (from 129p on 15-May under the old scheme). Assuming a c.50% cut in 2009E earnings (and no recurrence of further Treasury write-downs) we see post-rights 2009E EPS at c.6.5p per share, implying 10.8x 2009E at TERP against a sector on c.7x. TPG are likely to have a long time horizon and we do not believe they will buy the bank.
■ Book value support hardly compelling
The statement includes an update on book value which has, again, fallen. At 30-Apr-08 it stood at £1,033m stated, down from £1,211m at 31-Dec-07. In tangible terms, this means the TERP implies a multiple of 0.7x 2008E book value. However, with book value falling and the earnings outlook so weak, we see little support at anything above 70p.
The size of the rights issue is being raised to £400m (from £300m) and the issue price dropped to 55p (from 82p). The theoretical ex-rights price is now 70p (from 129p on 15-May under the old scheme). Assuming a c.50% cut in 2009E earnings (and no recurrence of further Treasury write-downs) we see post-rights 2009E EPS at c.6.5p per share, implying 10.8x 2009E at TERP against a sector on c.7x. TPG are likely to have a long time horizon and we do not believe they will buy the bank.
■ Book value support hardly compelling
The statement includes an update on book value which has, again, fallen. At 30-Apr-08 it stood at £1,033m stated, down from £1,211m at 31-Dec-07. In tangible terms, this means the TERP implies a multiple of 0.7x 2008E book value. However, with book value falling and the earnings outlook so weak, we see little support at anything above 70p.
NH:
Fundamentally unattractive but M&A support will arrive
On earnings, dividend (<3p 2008E, we feel) and even book value, we see little support above 70p per share. However, the bank’s cost base of £280m gives rise to a capitalised value of savings of near-£500m to a domestic bidder. We see the most likely candidates as LLOY, SAN and HSBA though note the latter two are more focused on emerging markets opportunities. LLOY may be tempted into a “mercy-killing” but unlikely at anything above TERP. We remain fundamental SELLers.
On earnings, dividend (<3p 2008E, we feel) and even book value, we see little support above 70p per share. However, the bank’s cost base of £280m gives rise to a capitalised value of savings of near-£500m to a domestic bidder. We see the most likely candidates as LLOY, SAN and HSBA though note the latter two are more focused on emerging markets opportunities. LLOY may be tempted into a “mercy-killing” but unlikely at anything above TERP. We remain fundamental SELLers.
NH:
hang on, got some stuff from Numis as well
NH:
Bradford & Bingley has confirmed weekend press comments on a number of
announcements including TPG to take a potential stake, the CEO Steve Crawshaw to resign,
the recently announced rights issue to be scaled back from £300m to £258m and an
imminent potential profit warning. In light of these events we put our target price under
review until we factor these into our numbers
announcements including TPG to take a potential stake, the CEO Steve Crawshaw to resign,
the recently announced rights issue to be scaled back from £300m to £258m and an
imminent potential profit warning. In light of these events we put our target price under
review until we factor these into our numbers
NH:
CEO resigns: The CEO Steve Crawshaw is stepping down following heart conditions and will
be replaced by Rod Kent. In our view the recent U-turn made surrounding funding issues
further deteriorated an already weak brand.
be replaced by Rod Kent. In our view the recent U-turn made surrounding funding issues
further deteriorated an already weak brand.