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Equity house to take stake in B&B Investor to shore up B&B finances
(about 1 hour later)
One of the world's largest private equity houses, Texas Pacific Group, is to take a stake of about 20% in Bradford & Bingley (B&B). One of the world's largest private equity houses is to take a stake of about 20% in Bradford & Bingley.
The move is to shore up the finances of the UK buy-to-let mortgage lender. The move by US investor Texas Pacific Group is to shore up the finances of the UK buy-to-let mortgage lender.
About £150m of funds would be injected into B&B, with existing stakeholders asked to provide £250m of new capital.About £150m of funds would be injected into B&B, with existing stakeholders asked to provide £250m of new capital.
It earlier emerged that B&B's chief executive, Stephen Crawshaw, is leaving a day before a trading update in which a profit warning is expected. The news came as B&B's chief executive stepped down for health reasons, on the eve of a warning that its profits will be much lower than the City expects.
Mr Crawshaw is stepping down for health reasons. Stephen Crawshaw had quit "due to a serious cardiovascular condition", the firm said.
Lower profits
Bradford & Bingley is the UK's eighth-largest bank and the biggest in the buy-to-let market.
The former building society is worth about £545m and has more than three million customers.
Bradford & Bingley has a trading problem, but it doesn't have the kind of problems Northern Rock had Robert PestonBBC Business Editor Peston's Picks
But the firm has been hit hard by the credit crisis, and in May launched a rights issue asking current shareholders to inject £300m.
The new plan represents a scaling back of that demand, but because of TPG's contribution, B&B would end up raising more than under the previous plan - about £400m in total.
The price of the new shares for TPG and for B&B's existing shareholders is expected to be a bit above 50p per share, well below the original rights price of 82p per share.The price of the new shares for TPG and for B&B's existing shareholders is expected to be a bit above 50p per share, well below the original rights price of 82p per share.
B&B has had to reconstruct its rights issue of new shares because it has come to the conclusion that its pre-tax profits this year will be significantly less than the City had been expecting. BBC Business Editor Robert Peston said: "The reason it needs all this money is because its profits are going to be lower this year than the City had expected.
US housing market "The City was expecting about £250m of profits this year. Unfortunately because of the downturn in the housing market, Bradford & Bingley is probably only going to make about £150m.
The firm has been hit hard by the credit crisis and is trying to raise £300m to boost its balance sheet. "That's a big drop - but nonetheless note, it is still likely to be in profit."
In May, it said it would launch a rights issue in an attempt to help offset some of its weakening investment, having only a month earlier denied it would be seeking to raise funds. One problem for Bradford & Bingley is that the housing market downturn has knocked the profits it makes from buy-to-let mortgages.
B&B saw its profits drop by almost half after writing down assets, including those linked to US mortgages. WHAT IS A RIGHTS ISSUE? Companies issue extra shares to raise money They are offered to existing shareholders, usually at a discount to the current share priceShares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones class="" href="http://newsvote.bbc.co.uk/2/shared/fds/hi/business/market_data/shares/3/23146/intraday.stm">Check Bradford & Bingley shares class="" href="http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/shares/3/498/0/default.stm">Check other banking shares
Pre-tax profit fell to £126m in 2007 from £246.7m the year before. The buy-to-let market in the UK is worth about 120bn, with B&B having about a fifth of that.
As the UK's biggest buy-to-let lender, B&B has 20% of that market which has suffered following recent market turmoil. The lenders' profits have been hit by a rise in the number of its borrowers who are experiencing difficulties making repayments on mortgages.
Banks worldwide have seen huge losses linked to problems in the struggling US housing market. A further squeeze on profits has come from a narrowing in the gap between the interest rate it pays for funds and the rate it receives from borrowers.
B&B, like other banks, has been asking for bigger deposits and raising its interest charges for new products. Its share price has fallen by more than two-thirds in just the last six months - and fell 40% in the last month alone.
But bankers and regulators say B&B's troubles are not comparable in gravity or complexity to those of Northern Rock.
Robert Peston says "people will draw parallels with Northern Rock, but I think those are the wrong parallels".
He said he had spoken to regulators who said B&B had a trading problem, "but it doesn't have the kind of problems Northern Rock had, namely it doesn't have a problem raising vital finances to keep going."
Also, he said, TPG had a fearsome track record as an investor.
"And the news that it is taking a substantial stake... may reassure the stock market that the worst could be behind B&B."