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Investor to shore up B&B finances | |
(about 1 hour later) | |
One of the world's largest private equity houses is to take a stake of about 20% in Bradford & Bingley. | |
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. |
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. | |
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. |
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. | |
"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. | |
"That's a big drop - but nonetheless note, it is still likely to be in profit." | |
One problem for Bradford & Bingley is that the housing market downturn has knocked the profits it makes from buy-to-let 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 | |
The buy-to-let market in the UK is worth about 120bn, with B&B having about a fifth of that. | |
The lenders' profits have been hit by a rise in the number of its borrowers who are experiencing difficulties making repayments on mortgages. | |
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. | |
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." |