Citi, UBS continue to back B&B

Bradford & Bingley is relying on its underwriters to raise capital from its rights issue as share prices plummeted 13p below the value at which they are being offered.

The bank's shares hit 42p on Tuesday (8 July), following last Friday's announcement the company plans to revise its issue to 67 for every 50 in existence, to be voted at at an extraordinary general meeting in Sheffield on 17 July.

However, these will still be offered at 55p each and look set to be of no interest to shareholders who can buy them more cheaply, leaving underwriters Citi and UBS out of pocket.

The crisis follows US private equity bank Texas Global Pacific's decision to back out of a £179m deal for 23 per cent of the company, and B&B's refusal to accept a £400m offer for up to 30 per cent from Clive Cowdery's Resolution, backed by major institutional investors including Standard Life and Legal & General.

According to the bank's statement last Friday: "The enlarged rights issue, which is supported by a number of the group’s largest shareholders - including M&G Investment Managers, Legal & General Investment Management, Insight Investment and Standard Life Investments - will have an unchanged subscription price of 55 pence a share.

"The group is also pleased to confirm that Citi and UBS will continue to underwrite the enlarged rights issue. Citi and UBS are also acting as joint sponsors and joint corporate brokers to the company.

"The board proposes to issue about 828m new shares in connection with the enlarged rights issue - representing about 57 per cent of the enlarged share capital of the Group."

Bruce Packard, an analyst with Pali international, said the investment is "unattractive" from "an equity shareholder perspective" and predicted more bids to buyout the business if share values continue to fall.

This was borne out by John Goodfellow, chairman of Skipton Building Society, admitting on Monday that he has considered making a bid for the beleaguered bank.

He told a specialist mortgage publication: "We believe its customers would have supported becoming members of a society again, of being enfranchised, of being owners.

"The B&B name is still very strong and such support would have helped attract retail funding. The only issue would have been, 'can you make enough money to service the debt taken on to buy it?'"