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Fears for Bradford & Bingley as watchdog steps in
THE long-term future of the Bradford & Bingley bank looks in serious doubt today after Britain's financial watchdog stepped in to prevent the collapse of its £400m rescue plan.
After a catalogue of disasters at the Yorkshire bank, the Financial Services Authority (FSA) activated an emergency rescue plan to prevent another Northern Rock-style crisis.
It followed the decision late on Thursday night by American investor TPG to withdraw a promise to buy a 23 per cent stake in the bank for a bargain 179m. That had enraged investors who thought the US private equity firm was being given preferential treatment.
Following TPG's decision to pull out, the FSA was left with two choices – announce the collapse of the rescue deal or activate an emergency back-up plan in which Bradford & Bingley's four big institutional investors gave their backing to a new 400m rights issue.
Fortunately for the bank, the big four – Legal & General, M&G, Standard Life and HBOS – agreed to pledge their 14 per cent joint stake to save the Bradford & Bingley from collapse.
The FSA was determined to avoid another crisis like Northern Rock last September, which sparked the first run on a British bank in 150 years. Thousands of customers queued to withdraw their savings amid fears the bank was going to collapse.
This led to the nationalisation of Northern Rock, the taxpayer having to cough up 24bn to secure the bank's future.
The FSA will be relieved it has found a private sector solution rather than having to ask cash-strapped taxpayers to bail out the Bradford & Bingley.
Last night influential shareholder group the UK Shareholders Association said it intended to recommend the latest rescue package to small shareholders.
About 40 per cent of the shares are owned by small investors, a legacy of the bank's former status as a building society. Nearly a million of the bank's customers, many of them based in Yorkshire, were given 250 shares each when the Bradford & Bingley demutualised in 2000.
While the UK Shareholders Association says the new deal is better than the former rescue plan, it has raised serious questions about the bank's future.
"The problems are temporarily resolved," said Roger Lawson of the UK Shareholders Association. "But there are serious questions about the group's long-term future. It has a high exposure to buy-to-let mortgages which will get it into problems. It is vulnerable to a takeover bid."
He added that the group's future would depend on how bad the housing market became.
"If negative equity becomes commonplace we may well see a higher default rate," said Mr Lawson. "Bradford & Bingley is in a similar position to Northern Rock, its strategy has come a cropper."
His sentiments were backed by City analysts who said the bank was suffering from a triple whammy of rising bad debts, huge writedowns on investments and soaring wholesale borrowing costs.
Hopes that entrepreneur Clive Cowdery could return with another investment plan, after he was rebuffed by Bradford & Bingley chairman Rod Kent last week, were dashed last night after insiders said Mr Cowdery would not want to buy a bank with such a low credit rating.
Last night the bank's shares closed down 18 per cent at 50p, some 5p below the rights issue price of 55p.
Blunders that put B&B on the brink
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Saturday 11 February 2012
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