bun.gle [buhng-guh l] v, n. 1. v (with object) to do clumsily and awkwardly; botch: He bungled the job. 2. v (wihout object) to perform or work clumsily or inadequately: He is a fool who bungles consistently.
Bradford and Bingley opened down 10.3 per cent this morning - crashing through the revised revised emergency emergency rights issue price of 55 pence.
For readers who didn’t catch the news, B&B had its institutional rating downgraded yesterday by rating agency Moody’s - thus triggering clauses which allowed TPG (former white knight) to pull its offer of a £179m capital infusion. Institutional shareholders have stepped into the breach at the last minute to provide the necessary funds.
The share price has since rattled back this morning (down 5.3% at 8:30BST), but it is looking a distinct possibility that it will fall further as the day wears on. A roundup below of what the analysts are saying.
First off - Moody’s reasons for downgrade (full statement here)
(i) the substantial deterioration in the bank’s asset quality so far in 2008 as well as the expectation that this will weaken further during the rest of the year;
(ii) the continuing obligation until 2009 to acquire mortgages from GMAC RFC (”GMAC”, unrated) of up to GBP 350 million per quarter; these mortgages have displayed a significantly faster deterioration of asset quality than the own-originated loan portfolio of Bradford & Bingley;
(iii) the weakening position of unsecured creditors in view of approximately 50% of assets being pledged to secured creditors; furthermore, the asset quality of the uncollateralised assets has weakened much more notably year-to-date than the overall relatively stronger performance of both the assets in the cover pool of Bradford & Bingley’s covered bonds as well as those in its Master Trust, Aire Valley;
(iv) further write downs, albeit significantly lower, in addition to the approx. GBP 300 million of writedowns taken so far on the bank’s structured securities portfolio; according to Moody’s assessment Bradford & Bingley may have to take further writedowns in the low to mid-double digit million pound range.
Cazenove:
The reasons for the credit rating downgrade are unsurprising given the trading statement on 2 June. However, Moody’s downgraded the company on 3 June in light of the information in the trading statement and the revised capital raising plan, and so it is unclear what has occurred over the past month to cause Moody’s to downgrade again. For B&B, the capital position is ultimately unchanged; it will receive the same amount of capital but now from a larger rights issue. However, the trading performance remains weak and we expect it will continue to deteriorate as impairment rises and the rating downgrade leads to additional funding costs. We retain an UNDERPERFORM recommendation.
Bruce Packard at Pali:
The fact TPG had inserted the clause about a possible downgrade suggests that they knew this might happen, and their investment case was so highly sensitive to BB/ cost of funds. There is also the possibility that more information became available on the arrears deterioration of the self cert and Buy to Let book, and the downgrade provided an escape route - which would have negative implications for HBOS. We think TPG ought to have factored in some pretty negative arrears and loss scenarios, and actually the higher cost of funds caused by the downgrade probably was the real reason why TPG walked away.
Related links
BB-, outlook negative - FT Alphaville
Uncertainty over B&B rights issue deepening - FT
