Bradford & Bingley’s rights issue snubbed
Bradford & Bingley’s attempt to raise £400 million by selling new shares has been shunned by its shareholders, with only around 8% expected to take the troubled mortgage lender up on its offer.
Shares in Bradford & Bingley have skirted the 55p issue price for nearly two months, and with the price at early morning trading at 54.75p, buying shares direct from the bank has been less attractive to its one million shareholders.
But even if the shareholders decide to turn their backs on Bradford & Bingley’s request for money to help shore up its balance sheet, it will still get its £400 million target. The underwriters UBS and Citigroup have both promised to buy the remaining shares should the bank’s shareholders choose not to.
In addition, some of the UK’s largest banks including HSBC, Lloyds, HBOS, Abbey and the Royal Bank of Scotland have also committed to buying up shares – which could collectively leave them with millions of pounds worth of unwanted stock on their hands.
Bradford & Bingley’s share price has been rocked by problems this year, including a shareholder rebellion, a profits warning and the sudden departure of its chief executive Steve Crawshaw.
Back in May the former building society had planned to issue new shares at 82p each. Although a big discount at the time, the ongoing problems within the business forced Bradford & Bingley to slash the issue price to just 55p.
The bank will report back on just how many shareholders bought new shares next week.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.